Carlos Receives a Proportionate Liquidating Distribution Consisting of $8,000 Cash

question 179

True/False

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000. His basis in his partnership interest was $15,000 immediately before the distribution. Carlos assigns a basis of $7,000 to the inventory and recognizes no gain or loss.

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Definitions:

Undue Influence

An improper use of power or trust in a way that deprives a person of free will and substitutes another's objective.

Mutual Mistake

A situation in contract law where all parties involved have a mistaken belief about a basic assumption on which the contract is based, potentially making the contract voidable.

Risk of Loss

The potential for an asset to decrease in value or for an event to cause financial hardship.

Jewelry Store

A retail business establishment specialized in selling jewelry, including rings, necklaces, earrings, and bracelets.