Tim receives a proportionate nonliquidating distribution from the RST Partnership when the basis of his interest is $60,000.The distribution consists of cash of $40,000 and inventory with a partnership basis of $30,000 and fair market value of $35,000.As a result of this distribution,Tim recognizes a $10,000 gain and takes a $30,000 basis in the inventory.

Question

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Tim recognizes no gain or loss on the distribution.His basis in the inventory is limited to the $20,000 basis remaining after taking into account the $40,000 cash distribution.In a proportionate nonliquidating distribution,gain is recognized to the extent the distributed cash exceeds the partner's basis in the partnership interest.The basis in noncash property is the lesser of the partnership's inside basis in the property or the partner's outside basis before the distribution.

Tim Receives a Proportionate Nonliquidating Distribution from the RST Partnership