Problem
Topic: Disproportionate Distribution || Advanced Partnership Tax ||
Problem: Kelly, Sabrina, and Jill are equal partners in a partnership that has the following assets: (a) $120,000 of cash, (b) inventory with a basis of $114,000 and a value of $120,000, and (c) land with a basis of $75,000 and a value of $120,000. Except as otherwise indicated, each partner's outside basis is $103,000.
1. Kelly's interest in the partnership is redeemed in exchange for $120,000. What are the tax consequences to Kelly and the continuing partners?
2. How would Kelly's tax consequences change if she sold her partnership interest for $120,000 to Bosley?
3. How would your answer to Problem 1 change if the inventory had a tax basis of $90,000 and Kelly's outside basis was $95,000?
4. Assume the same facts as in Problem 4c, except that the partnership distributes the land to Kelly in liquidation of her partnership interest. What are the tax consequences to Kelly and the partnership?