Question

Liquidating Distributions. The AB Partnership pays its only liability (a $100,000 mortgage) on April 1 of the

current year and terminates that same day. Alison and Bob were equal partners in the partnership but have partnership bases immediately preceding these transactions of $110,000 and $180,000, respectively, including his or her share of liabilities. The two partners receive identical distributions with each receiving the following assets:

Assets        Partnership’s   Basis FMV

Cash           $ 20,000            $ 20,000

Inventory      33,000               35,000

Receivables   10,000           8,000

Building         40,000            60,000

Land             15,000              10,000

Total            $118,000        $133,000

The building has no depreciation recapture potential. What are the tax implications to Alison, Bob, and the AB Partnership of the April 1 transactions (i.e., basis of assets to Alison and Bob, amount and character of gain or loss recognized, etc.)? Assume that no Sec. 754 election is in effect.

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