If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?
A) The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interest.
B) The partner will not ever be taxed on the distribution in excess of her basis.
C) The partner will treat the distribution in excess of her basis as ordinary income.
D) The partner will treat the distribution in excess of her basis as capital gain.

Question

Quizplus · Accepted Answer

If a partner receives a deemed cash distribution in excess of her tax basis, the excess is treated as a capital gain.

If Partnership Debt Is Reduced and a Partner Is Deemed