The December 31, 2016, Balance Sheet of GST Services, LLP

question 39

Multiple Choice

The December 31, 2016, balance sheet of GST Services, LLP reads as follows: $$\begin{array} { l r r } &\text { Adjusted } \\&\text { Basis }&\text { F M V } \\ \text { Cash } & \$ 300,000 & \$ 300,000 \\\text { Receivables } & - 0 - & 150,000 \\\text { Capital assets } & \underline { 120,000 } & \underline { 150,000 } \\\text { Total } & \mathbf { \$4 20,000 } & \mathbf { \$ 6 0 0 , 0 0 0 } \\& & \\ \text { George, capital } & \$ 140,000 & \$ 200,000 \\\text { Sue, capital } & 140,000 & 200,000 \\\text { Tom, capital } & 140,000 & 200,000 \\\text { Total } & \underline { \$ 420,000 } & \underline { \$ 600,000 }\end{array}$$ The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership, and all partners are active in the business. On December 31, 2016, general partner Sue receives a distribution of $200,000 cash in liquidation of her partnership interest under § 736. Sue's outside basis for the partnership interest immediately before the distribution is $150,000. (Her basis does not correspond to her capital account because she purchased the interest a few years ago at a $10,000 premium.) How much is Sue's gain or loss on the distribution and what is its character?

• A)$50,000 ordinary income.
• B)$40,000 ordinary income; $10,000 capital gain.
• C)$40,000 capital gain; $10,000 ordinary income.
• D)$60,000 capital gain.
• E)None of the above.

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Definitions:

Bronchitis

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Malignant Neoplasm

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