Kathy Is a 25% Partner in the KDP Partnership and Receives

question 37

Multiple Choice

Kathy is a 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest.Kathy's outside basis immediately before the distribution is $160,000.KDP currently has a §754 election in effect and has no hot assets or liabilities.Which of the following statements is true?

• A) KDP will step up the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
• B) KDP will step up the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.
• C) KDP will step down the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
• D) KDP will step down the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.

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Definitions:

Distribution Of Output

Refers to how the total output of goods or services is spread across various participants in an economy, affecting income and wealth distribution.

Market Economy

An economic system where decisions regarding investment, production, and distribution are guided by the market's supply and demand forces rather than government intervention.

Consumer Needs

The essential goods and services that customers consider necessary or desirable in their everyday lives.

Competitive Market System

A market structure characterized by many buyers and sellers, free entry and exit, and products that are similar, fostering competition.