The ABC Partnership makes a proportionate distribution of its assets to Charles,in complete liquidation of his partnership interest.The distribution consists of $30,000 in cash and capital assets with a basis to the partnership of $20,000 and a fair market value of $28,000.None of the payment is for partnership goodwill.At the time of the distribution,Charles's partnership basis is $42,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return,it recognizes:
A)Capital gain of $16,000 and increases the basis of its remaining assets by $8,000.
B)Capital loss of $8,000 and decreases the basis of its remaining assets by $16,000.
C)No gain or loss and increases the basis of its remaining assets by $8,000.
D)No gain or loss and decreases the basis of its remaining assets by $16,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Under § 732(b),Charles is limited to a basis of $12,000 in the capital assets received ($42,000 basis of partnership interest less $30,000 cash received).The partnership's $20,000 basis in the capital assets exceeds their $12,000 basis to Charles by $8,000.Thus,if a § 754 election is made,the partnership is entitled to increase the basis of its remaining property by $8,000.No gain or loss is recognized by the partnership,since the liquidating distribution is pro rata.

The ABC Partnership Makes a Proportionate Distribution of Its Assets