Michelle Receives a Proportionate Liquidating Distribution When the Basis of Her

question 219

Multiple Choice

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property (adjusted basis to the partnership of $10,000 and fair market value of $12,000) . The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

• A) $0 gain or loss? $0 basis in property.
• B) $0 gain or loss? $50,000 basis in property.
• C) $8,000 ordinary income? $0 basis in property.
• D) $8,000 capital gain? $10,000 basis in property.
• E) $8,000 capital gain? $0 basis in property.

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Definitions:

Minimum Legal Capital

The least amount of capital that a company is required to maintain by law, intended to protect creditors by ensuring the company has enough assets to meet its obligations.

Stockholders

Individuals or entities that own shares in a corporation, giving them ownership interests and possibly rights to dividends, voting, and information.

Corporation's Actions

Decisions or movements made by a corporation, such as dividend distributions, stock splits, or acquisitions, affecting its operations and stakeholders.

Shares Outstanding

The total number of a company's shares of stock that are owned by shareholders, including those held by institutional investors and restricted shares.