Partner Tom Transferred Property (Basis of $20,000; Fair Market Value

question 52

Multiple Choice

Partner Tom transferred property (basis of $20,000; fair market value of $50,000) to the TUV Partnership in exchange for a partnership interest. At a later date, when Tom's outside basis for his partnership interest was $70,000, Tom received a $50,000 cash distribution from the partnership. Which one of the following statements is not true?

• A) If the cash distribution occurred two months after the property contribution, the IRS may treat the transaction as a disguised sale.
• B) If the transaction is treated as a disguised sale, Tom's basis in the partnership interest will be $20,000.
• C) If Tom would have made the property contribution anyway, even if he knew that the partnership would probably not have any cash to distribute to him, the IRS would not likely contend the transaction was a disguised sale.
• D) If the IRS treated the transaction as a disguised sale, the partnership's basis in the property would be $50,000.

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Definitions:

Price Decrease

A decline in the cost of a good or service in the market.

Lobster Consumption

The amount of lobster that is consumed by individuals or populations within a certain timeframe.

Cross-price Elasticity

A gauge of the reaction in the amount of one product demanded when there's a price change in another product.

Substitutes

Goods or services that can be used in place of each other, where the increase in the price of one leads to an increase in the demand for the other.