The BR LLC Owns an Unrealized Receivable with a Basis

question 225

Multiple Choice

The BR LLC owns an unrealized receivable with a basis of $0 and fair market value of $200,000 plus cash of $200,000. If BREE distributes $20,000 of the receivable to 50% member Brenda and $20,000 of cash to 50%
Member Renee, which one of the following statements is true?

• A) Brenda recognizes $20,000 of capital gain.
• B) The partnership recognizes $20,000 of ordinary income.
• C) Renee recognizes $10,000 of ordinary income.
• D) Brenda recognizes $10,000 of ordinary income.
• E) Because both partners receive the same value, none of the parties recognizes gross income.

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Definitions:

Mental Shortcuts

A general term for heuristics, which are simple, efficient rules, used by the brain to form judgments and make decisions.

Midwest

A region in the United States known for its geographical location in the central part of the country and its agricultural and industrial output.

East Coast

A term typically referring to the eastern seaboard of the United States, known for its significant historical, financial, and cultural centers.

Heuristics

Heuristics are mental shortcuts or simple strategies used to make quick and efficient decisions or solve problems, often employed when facing complex issues or incomplete information.