Does Adjusting a Partner's Basis for Tax-Exempt Income Prevent Double

question 20

Multiple Choice

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

• A) Yes, if this basis adjustment is not made the partner will be taxed once when the income is allocated to him and a second time when he sells his partnership interest
• B) Yes, if this basis adjustment is not made the partner will be taxed on the tax-exempt income twice when he sells his partnership interest because he was not taxed on this income when it was earned
• C) No, making this adjustment to the partner's basis prevents the tax-exempt income from being converted to taxable income
• D)No, the partner should not adjust his tax basis by his share of tax-exempt income