The December 31 Balance Sheet of GST Services, LLP Reads

question 89

Multiple Choice

The December 31 balance sheet of GST Services, LLP reads as follows. $\begin{array}{lrr}&\text { Adjusted } & \\&\text { Basis } & \text { FMV } \\\text { Cash } & \$ 300,000 & \$ 300,000 \\\text { Receivables } & -0- & 150,000 \\\text { Capital assets } & \underline{120,000} & \underline{150,000} \\\text { Total } & \$ 420,000 & \$ 600,000\\\\\text { George, capital } & \$ 140,000 & \$ 200,000 \\\text { Sue, capital } & 140,000 & 200,000\end{array}$ $\begin{array}{lll}\text { Tom, capital } & {140,000}& {200,000}\\\text { Total } &{\$ 420,000} &{\$ 600,000} \end{array}$ The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership, and all partners are active in the business. On December 31, general partner Sue receives a distribution of $200,000 cash in liquidation of her partnership interest under § 736. Sue's outside basis for the partnership interest immediately before the distribution is $150,000. Her basis does not correspond to her capital account because she purchased the interest a few years ago at a $10,000 premium.) How much is Sue's gain or loss on the distribution and what is its character?

• A) $50,000 ordinary income.
• B) $40,000 ordinary income? $10,000 capital gain.
• C) $40,000 capital gain? $10,000 ordinary income.
• D) $60,000 ordinary income.
• E) $50,000 ordinary income? $10,000 capital gain.

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Definitions:

Synapsids

A group of animals that includes mammals and their extinct relatives, characterized by a single temporal fenestra (an opening in the skull behind each eye).

Reptiles

Cold-blooded vertebrates characterized by scales or hard plates, such as snakes, turtles, and lizards, that reproduce mostly through eggs.

Modern-Day Mammals

Contemporary species of the mammalian class, characterized by features such as hair, three middle ear bones, and mammary glands for feeding young.

Paleontologists

Scientists who study the history of life on Earth through the examination of fossilized remains and traces of organisms.