ExpertHard1 markMultiple Choice
CPA · Question 57 · Area III: Entity Tax Planning
Partnership AB distributes Property X (Basis $10,000, FMV $15,000) to Partner A. Partner A contributed Property Y (Basis $10,000, FMV $15,000) 2 years ago. Property Y is still held by the partnership. Does this trigger any gain?
Partnership AB distributes Property X (Basis $10,000, FMV $15,000) to Partner A. Partner A contributed Property Y (Basis $10,000, FMV $15,000) 2 years ago. Property Y is still held by the partnership. Does this trigger any gain?
Answer options:
A.
No, distributions are tax-free.
B.
Yes, under the mixing bowl rules (IRC §737), Partner A may recognize gain.
C.
Yes, but only if cash is distributed.
D.
No, because the FMV equals the basis.
How to approach this question
Identify Mixing Bowl: Partner contributes property -> receives OTHER property within 7 years. Triggers §737 gain.
Full Answer
B.Yes, under the mixing bowl rules (IRC §737), Partner A may recognize gain.✓ Correct
B
IRC §737. If a partner contributes appreciated property and receives a distribution of other property within 7 years, the partner recognizes gain equal to the lesser of the remaining pre-contribution gain or the excess of FMV of distributed property over the partner's basis.
Common mistakes
Ignoring the 7-year mixing bowl rules.
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