Timothy is a 35 percent partner in the Total Partnership, a calendar-year-end entity. Timothy has an outside basis in his interest in Total of $198,000, which includes his share of the $45,000 of partnership liabilities. On December 31, Total makes a proportionate distribution of the following assets to Timothy:
| |
Basis
|
FMV
|
|
Cash
|
$50,000
|
$50,000
|
|
Inventory
|
65,000
|
75,000
|
|
Land
|
50,000
|
65,000
|
|
Totals
|
$165,000
|
$180,000
|
- For an operating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.
- For a liquidating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.
- Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.