The Crimson Partnership is a service provider. Its assets consist of unrealized receivables (basis of $0, fair market value of $400,000), cash of $300,000, and land (basis of $200,000, fair market value of $300,000). Assume 20% general partner Jana has a basis in her partnership interest of $100,000. If the ongoing partnership distributes $200,000 of cash to Jana in liquidation of her interest in the partnership, she will recognize ordinary income of $80,000 and a capital gain of $20,000.

Question

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The distribution of $200,000 to Jana in liquidation of her partnership interest will result in ordinary income of $80,000 (the excess of the distribution over her basis in her partnership interest) and a capital gain of $20,000 (the excess of the fair market value of the land over its basis).

The Crimson Partnership Is a Service Provider