If Partnership Debt Is Reduced and a Partner Is Deemed

question 98

Multiple Choice

If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

• A) The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interest.
• B) The partner will not ever be taxed on the distribution in excess of her basis.
• C) The partner will treat the distribution in excess of her basis as ordinary income.
• D) The partner will treat the distribution in excess of her basis as capital gain.

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