Doris Owns a 1/3 Capital and Profits Interest in the Calendar-Year

question 59

Essay

Doris owns a 1/3 capital and profits interest in the calendar-year DB Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $20,000. On that date, she receives an operating distribution of her share of partnership assets shown below:

What is the amount and character of Doris' gain or loss on the distribution? What is her basis in the distributed assets?

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Definitions:

Residual Income

Income that continues to be generated after the initial effort has been expended, or in managerial accounting, the operating income that an investment center earns above the minimum required return on its operating assets.

Minimum Required Rate

The lowest return on investment that an investor is willing to accept, considering the risk involved.

Residual Income

The net operating income an investment earns above the minimum rate of return expected by its investors or company management.

Turnover

The rate at which inventory is sold and replaced or an employee leaves and is replaced within a company.