Partnership AB distributes Property X (Basis $10,000, FMV $15,000) to Partner A. Partner A contributed Property Y (Basis $10,000, FMV $15,000) 2 years ago. Property Y is still held by the partnership. Does this trigger any gain?

Answer options:

No, distributions are tax-free.

Yes, under the mixing bowl rules (IRC §737), Partner A may recognize gain.

Yes, but only if cash is distributed.

No, because the FMV equals the basis.

How to approach this question

Identify Mixing Bowl: Partner contributes property -> receives OTHER property within 7 years. Triggers §737 gain.

Full Answer

B.Yes, under the mixing bowl rules (IRC §737), Partner A may recognize gain.✓ Correct

IRC §737. If a partner contributes appreciated property and receives a distribution of other property within 7 years, the partner recognizes gain equal to the lesser of the remaining pre-contribution gain or the excess of FMV of distributed property over the partner's basis.

Common mistakes

Ignoring the 7-year mixing bowl rules.

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