A Partnership May Make an Optional Election to Adjust the Basis

question 104

Multiple Choice

A partnership may make an optional election to adjust the basis of its property on a distribution to a partner which liquidates the partner's entire interest in the partnership. If such an election is in effect, the partnership:

• A)Generally applies the election to transfers that take place at any later date, unless the election is revoked.
• B)Only adjusts the basis of its property for differences in basis between that of the partnership and a distributee partner if a transferor-transferee situation arises within two years after the distribution.
• C)Increases the basis of similar retained assets when a distributee partner takes a basis which is greater than the partnership's basis in these assets, assuming the partnership does not have any receivables or inventory.
• D)Decreases the basis of similar retained assets when the distributee partner recognizes gain on the distribution.
• E)All of the above.

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Definitions:

Unrealized Profits

Gains on assets that have appreciated in value but have not been sold, and therefore, the gains are not reflected in the financial results as actual income.

Upstream Sales

Transactions in which a subsidiary sells goods or services to its parent company, often analyzed for transfer pricing and tax considerations.

Unrealized Profits

Profits that have been generated on paper through investments and other financial instruments but have not yet been realized through actual transactions.

Journal Entry

A recorded transaction in the financial accounting system, documenting the debits and credits necessary to maintain the balance sheet's integrity.