The RST Partnership Makes a Proportionate Distribution of Its Assets

question 94

Multiple Choice

The RST Partnership makes a proportionate distribution of its assets to Ryan in complete liquidation of his partnership interest. The distribution consists of $40,000 in cash and capital assets with a basis to the partnership of $30,000 and a fair market value of $48,000. None of the payment is for partnership goodwill. At the time of the distribution, Ryan's partnership basis is $45,000 and the partnership has no liabilities and no hot assets. If the partnership makes an optional basis adjustment election on a timely filed return, the partnership recognizes:

• A) Capital gain of $25,000 and increases the basis of its remaining assets by $12,500.
• B) Capital loss of $5,000 and decreases the basis of its remaining assets by $5,000.
• C) No gain or loss and increases the basis of its remaining assets by $12,500.
• D) No gain or loss and increases the basis of its remaining assets by $25,000.
• E) No gain or loss and decreases the basis of its remaining assets by $58,000.

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Definitions:

Mediator

An impartial individual who facilitates communication and negotiation between disputing parties to help them reach a voluntary agreement.

Two-Party Negotiation

A process where two parties discuss their differences and attempt to reach an agreement or solution.

Compatible Interests

Interests that align well together, allowing individuals or groups to engage cooperatively in activities or goals.

Test of Wills

A situation or contest in which individuals or groups challenge each other's resolve or determination.