Question

ACCT 540 Assignment 6 Using the number on the table below determine the tax treatment to the partner who receives the distribution indicated, and then assuming the partnership has made a Section 754 election, determine the Section 734 adjustment, if any. If there is none write "None" or "N/A In EACH case the basis of the partner's interest is $50,000 before the distribution. The distribution consists of cash, a capital asset, and inventory as shown. If a column is blank then that type of asset was not distributed. The column for "Liquidating" indicates whether the distribution liquidated the partner's interest or not. Basis of Capital Asset 30,000 30 None Distributed None Distributed Situatio Cash Basis of None Distributed No 10,000 10,000 10,000 60 30,000 Yes COMPLETE THIS TABLE Section 734 Adjustment, if Basis to Cash Situatio Partner Basis to

Answer 1

Completion of Table
Situation	Partner Gain/<Loss>	Basis to cash	Basis to property	Sec 734 Adjustments,if any
A	<Loss>	10,000	30,000	yes
B	<Loss>	10,000	30,000	yes
C	<Loss>	10,000	30,000	yes
D	Gain	60,000	30,000	No
E	None	-	50,000	yes
Note:-In Each Case the basis of the partner's interest is $50,000 before the Distribution Section 734 Adjustments Under Section 734, a partnership that has a Section 754 election may also be required to make adjustments to its retained property when it makes a distribution to a partner if i) the partner’s basis of the property after the distribution is not equal to the basis of the property in the hands of the partnership, or ii) the partner recognizes a gain or loss on the distribution. If a partnership makes a distribution and a Section 734 adjustment is required, the partnership must increase the inside basis of its retained property by the sum of (i) the amount of gain recognized by the distributee partner on the distribution under Section 731(a)(1) and (ii) the amount the basis of distributed property is reduced as a result of the distribution under Section 732(a)(2). This is done to prevent the same economic gain from being taxed twice, once by the distributee partner, and again by the partnership. If a partnership makes a distribution and a Section 734 adjustment is required, the partnership must also reduce the basis of its retained property by (i) the amount of loss recognized by the liquidated partner on the distribution under Section 731(a)(2) and (ii) the amount the basis of the distributed property is increased as a result of the distribution under Section 732(b).