Partner Z Received a Current Distribution from the XYZ Partnership

question 1

Multiple Choice

Partner Z received a current distribution from the XYZ Partnership consisting of $3,000 cash and partnership inventory (FMV $10,000 and basis $7,800) .The distribution did not change Z's profit and loss sharing ratio.Immediately prior to the distribution, Z's outside basis in his partnership interest was $11,000.Because of the distribution Z must:

• A)Recognize a $2,000 gain and reduce outside basis to zero
• B)Recognize no gain or loss and reduce outside basis to $8,000
• C)Recognize no gain or loss and reduce outside basis to zero
• D)Recognize no gain or loss and reduce outside basis to $200
• E)Recognize a $200 loss and reduce outside basis to zero

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