In a Proportionate Liquidating Distribution of His 40% Interest in the RST

question 147

Essay

In a proportionate liquidating distribution of his 40% interest in the RST LLC, Stuart received cash ($100,000), land (basis of $60,000 and value of $90,000), and inventory (basis of $30,000 and value of $40,000). In addition, Stuart is relieved of his $80,000 share of the LLC's liabilities. Stuart's basis in RST (including his share of LLC liabilities) was
$200,000 immediately prior to this distribution.

a. How much gain or loss does Stuart recognize on this distribution?
b. What is Stuart's basis in the land and inventory he receives in the distribution?

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Definitions:

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers, resulting in market stability.

Inelastic Demand

Inelastic demand occurs when consumers' purchase quantity does not significantly change in response to a change in the price of the product.

Bovine Infertility

The inability of cows to conceive and produce offspring.

Supply Curve

A graphical representation of the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to supply at each price.