ExpertMedium1 markMultiple Choice
CPA · Question 40 · Area II: Entity Tax Compliance
A partnership distributes a marketable security (Basis $20,000, FMV $35,000) to a partner in a nonliquidating distribution. The partner's basis in the partnership is $50,000. The partner holds the security for 2 years and sells it for $40,000. What is the partner's basis in the security upon receipt?
A partnership distributes a marketable security (Basis $20,000, FMV $35,000) to a partner in a nonliquidating distribution. The partner's basis in the partnership is $50,000. The partner holds the security for 2 years and sells it for $40,000. What is the partner's basis in the security upon receipt?
Answer options:
A.
$20,000
B.
$35,000
C.
$50,000
D.
$15,000
How to approach this question
General Rule: Partner takes the partnership's basis (Carryover Basis), limited to their outside basis. $20k < $50k, so basis is $20k.
Full Answer
A.$20,000✓ Correct
A
IRC §732(a). The basis of property distributed is the adjusted basis to the partnership ($20,000), provided it does not exceed the partner's outside basis ($50,000).
Common mistakes
Using FMV; allocating full outside basis to the property.
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