ExpertEasy1 markMultiple Choice
CPA · Question 63 · Area II: Entity Tax Compliance
A partnership distributes cash of $30,000 to a partner in liquidation of their interest. The partner's basis was $20,000. What is the gain/loss?
A partnership distributes cash of $30,000 to a partner in liquidation of their interest. The partner's basis was $20,000. What is the gain/loss?
Answer options:
A.
$0
B.
$10,000 Capital Gain
C.
$10,000 Ordinary Income
D.
$10,000 Loss
How to approach this question
Liquidating Distribution: Gain recognized if Cash > Basis.
Full Answer
B.$10,000 Capital Gain✓ Correct
IRC §731. Gain is recognized to the extent money distributed exceeds the adjusted basis of the partner's interest.
Common mistakes
Thinking partnership distributions are always tax-free.
Practice the full CPA TCP Practice Exam 5
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted an Incentive Stock Option (ISO) to purchase 1,000 shares of co...MediumQ02A taxpayer has a $500,000 interest-free loan from their employer outstanding for the entire Year ...MediumQ03A taxpayer wants to donate stock held for 5 years to a public charity. The stock has an adjusted ...MediumQ04An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2...MediumQ05A taxpayer invests $50,000 cash for a 20% interest in a partnership. The partnership takes out a ...Hard