The LMO Partnership distributed $30,000 cash to Emma in a proportionate, nonliquidating distribution.Emma's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution, Emma's basis is reduced to $0 and she recognizes a $5,000 gain.

Question

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A proportionate, nonliquidating distribution reduces the basis of the partner's interest by the amount received. Therefore, Emma's basis would be reduced to $0 after receiving the $30,000 distribution. Since her basis is lower than the amount received, she would recognize a gain of $5,000.

The LMO Partnership Distributed $30,000 Cash to Emma in a Proportionate