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    PracticeCPA®CPA TCP Practice Exam 5Question 63
    Easy1 markMultiple Choice
    Area II: Entity Tax ComplianceTCPEntity TaxPartnership

    CPA · Question 63 · Area II: Entity Tax Compliance

    A partnership distributes cash of $30,000 to a partner in liquidation of their interest. The partner's basis was $20,000. What is the gain/loss?

    Answer options:

    A.

    $0

    B.

    $10,000 Capital Gain

    C.

    $10,000 Ordinary Income

    D.

    $10,000 Loss

    How to approach this question

    Liquidating Distribution: Gain recognized if Cash > Basis.

    Full Answer

    B.$10,000 Capital Gain✓ Correct
    B
    IRC §731. Gain is recognized to the extent money distributed exceeds the adjusted basis of the partner's interest.

    Common mistakes

    Thinking partnership distributions are always tax-free.
    Question 62All questionsQuestion 64

    Practice the full CPA TCP Practice Exam 5

    68 questions · hints · full answers · grading

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