Question

Pelican Partnership makes an operating distribution to Prabakhar consisting of $30,000 in cash and capital assets worth $10,000 (partnership basis $8,000). Immediately prior to the distribution Prabhakar’s outside basis in the partnership was $35,000. What amount of gain will Prabhakar recognize on the distribution, and what is Prabhakar’s resulting outside basis in the partnership?

Answer 1

Answer:

$0 and $0

Explanation:

Since the cash distribution is $30,000 and the Prabhakar outside basis in the partnership is $35,000 which reduced his basis by $5,000 ($35,000 - $30,000)

The Prabhakar outside basis in the partnership i.e $35,000 is more than the cash distribution i.e $30,000 which results in no gain and no outside basis in the partnership.