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    Recognition of gain in liquidation of a partner's interest

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    The Dec. 31, 2006, balance sheet of the BCD General Partnership reads as follows.
    Basis FMV
    Cash $180,000 $180,000
    Receivables 0 0
    Capital assets 42,000 63,000
    Total $222,000 $333,000

    Ben, capital $74,000 $111,000
    Cassie, capital 74,000 111,000
    Deidra, capital 74,000 111,000
    Total $222,000 $333,000

    Each partner shares in 1/3 of the partnership capital, income, gain, loss, deduction and credit. Capital is not a material income-producing factor to the partnership. On Dec. 31, 2006, general partner Cassie receives a distribution of $120,000 cash in liquidation of her partnership interest under section 736. Nothing is stated in the partnership agreement about goodwill. Cassie's outside basis for the partnership interest immediately before the distribution is $74,000.

    How much is Cassie's recognized gain from the distribution and what is the character of the gain?

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    Solution Preview

    Section 736 has a part a. and a part b. Payments made under part a. are payments of income, but this problem clearly tells us that the payment Cassie received is all part b. 736(b) says the entire payment is a ...

    Solution Summary

    The solution explains the applicability of a tax code section to the liquidation of a partner's full interest in a partnership. The gain is calculated and the reporting (where and how much) is discussed.