Timothy is a 35 percent partner in the Total Partnership

Timothy is a 35 percent partner in the Total Partnership

Question


Timothy is a 35 percent partner in the Total Partnership, a calendar-year-end entity. Timothy has an outside basis in his interest in Total of $198,000, which includes his share of the $45,000 of partnership liabilities. On December 31, Total makes a proportionate distribution of the following assets to Timothy:

Basis

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Cash $50,000
Inventory 65,000
Land 50,000
Totals $165,000

FMV

Cash $50,000
Inventory 75,000
Land 65,000
Totals $180,000

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1- For an operating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.
2 -For a liquidating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.
3 -Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.