The RST Partnership Makes a Proportionate Distribution of Its Assets

question 69

Multiple Choice

The RST Partnership makes a proportionate distribution of its assets to Ryan, in complete liquidation of his partnership interest. The distribution consists of $40,000 in cash and capital assets with a basis to the partnership of $30,000 and a fair market value of $48,000. None of the payment is for partnership goodwill. At the time of the distribution, Ryan's partnership basis is $45,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return, the partnership recognizes:

• A)Capital gain of $25,000 and increases the basis of its remaining assets by $12,500.
• B)Capital loss of $5,000 and decreases the basis of its remaining assets by $5,000.
• C)No gain or loss and increases the basis of its remaining assets by $25,000.
• D)No gain or loss and decreases the basis of its remaining assets by $58,000.
• E)None of the above.

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Definitions:

Oxidation

The loss of one or more electrons (or hydrogen atoms) by an atom, ion, or molecule.

Sodium

A chemical element with symbol Na and atomic number 11, known for its essential role in nerve function and fluid balance in biological organisms.

Chloride

A negatively charged ion (Cl-) that is crucial for fluid balance in the body and plays a role in the production of stomach acid.

Methane

A colorless, odorless gas (CH4) that is the simplest alkane and a primary component of natural gas.