Timothy is a 35 percent partner in the total partnership a

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Timothy is a 35 percent partner in the Total Partnership, a calendar-year-end entity. Timothy has an outside basis in his interest in Total of $198,000, which includes his share of the $45,000 of partnership liabilities. On December 31, Total makes a proportionate distribution of the following assets to Timothy:


Basis

FMV

Cash

$50,000

$50,000

Inventory

65,000

75,000

Land

50,000

65,000

Totals

$165,000

$180,000

1. For an operating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.

2. For a liquidating distribution, outline the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Timothy.

3. Discuss the similarities and differences between the tax consequences of the operating distribution and the tax consequences of the liquidation distribution.

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Reference no: EM13379987

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