When Rachel's Basis in Her Interest in the RST Partnership

question 28

Essay

When Rachel's basis in her interest in the RST Partnership is $40,000, she receives a current distribution of office equipment. The equipment has an FMV of $60,000 and a basis of $50,000. Rachel will not use the office equipment in a business activity. What tax issues should Rachel consider with respect to the distribution?

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Definitions:

Income Summary

An account in the ledger that is used to summarize the revenue and expenses of a period, facilitating the transfer of their net effect to retained earnings.

Net Income

The final earnings of a corporation once expenses and taxes are subtracted from its gross income.

Income Summary Account

An account used in the closing process to summarize the results of all revenue and expense accounts.

Capital

Financial assets or the financial value of assets, such as cash and goods, used by an organization to fund its operations and grow.