If Partnership Debt Is Reduced and a Partner Is Deemed

question 7

Multiple Choice

If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

• A)The partner will treat the distribution in excess of her basis as ordinary income.
• B)The partner will treat the distribution in excess of her basis as capital gain.
• C)The partner will not ever be taxed on the distribution in excess of her basis.
• D)The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interest.

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Definitions:

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The conduct, aims, or qualities that characterize or mark a profession or professional person; often involving competence, skill, and adherence to ethical standards.

Accountability

The obligation of individuals or organizations to account for their activities, accept responsibility for them, and disclose the results in a transparent manner.

Subjectiveness

The quality of being based on or influenced by personal feelings, tastes, or opinions rather than external facts.

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