MODULE 35 TAXES: PARTNERSHIPS 555

exceed the $50,000 basis of Jody's partnership interest im- nized gain or loss resulting from "the cash and inventory re-
mediately before the distribution, no gain is recognized. ceiv e d in complete liquidation of Reed's partnership interest.
62. (b) The requirement is to determine the basis of
property received in a current distribution. If both cash and
noncash property are received in a single distribution, the
basis for the partner's partnership interest is first reduced by
the cash, before being reduced by noncash property. Al-
though a partner's basis for distributed property is generally
the same as the partnership's basis for the property ($40,000
in this case), the partner's basis for distributed property will
be limited to the partner's basis for the partnership interest
reduced by any money received in the same distribution.
Here, the $50,000 basis of Jody's partnership interest is first
reduced by the $20,000 of cash received, with the remaining
basis of $30,000 allocated as the basis for the property re-
ceived.
63. (d) The requirement is to determine the amount of
income from the receipt of retirement payments to be re-
ported by Berk-in 2008 and 2009. Payments to a retiring
partner are generally treated as received in exchange for the
partner's interest in partnership property. As such, they are
generally treated under the rules that apply to liquidating
distributions. Retirement payments are not deductible by the
partnership as guaranteed payments and are not treated as
distributive shares of income. Under the rules for liquidat-
ing distributions, the $5,000 per month cash payments are
treated as a reduction of the basis for Berk's partnership
interest, and result in gain to the extent in excess of basis.
Berk's $80,000 basis for his partnership interest ($50,000
capital + $30,000 share of liabilities) would first be reduced
by the relief from $30,000 of liabilities to $50,000. Next,
the $30,000 of cash payments received during 2008 (6 x
$5,000) would reduce Berk's basis to $20,000 and result in
no gain to be, reported for 2008. Finally, the $60,000 of
payments for 2009 (12 x $5,000) would exceed his remain-
ing basis and result in Berk's reporting of $40,000 of capital
gain for 2009.
64. (b) The requirement is to determine-the correct
statement regarding the basis of property to a partner that is
distributed "in-kind" in complete liquidation of the partner's
interest. In a complete liquidation of a partner's interest in a
partnership, the in-kind property distributed will have a basis
equal to the adjusted basis of the partner's partnership inter-
est reduced by any money received in the same distribution.
Generally, in a liquidating distribution, the basis for a part-
nership interest is .(1) first reduced by the amount of money
received, (2) then reduced by the partnership's basis for any
unrealized receivables and inventory received, (3) with any
remaining basis for the partnership interest allocated to other
property received in proportion to their adjusted bases (not
FV) to the partnership.
65. ( c) The requirement is to determine the basis of the
inventory received in a nonliquidating partnership distribu-
tion of cash and inventory. Here, the $25,000 basis of
Reed's partnership interest would first be reduced by the
$11,000 of cash received, and then reduced by the $5,000
basis of the inventory to $9,000. Reed's basis for the in-
ventory received is $5,000.
66. (b) The requirement is to determine Reed's recog-
A distributee partner can recognize loss only upon the com-
plete liquidation of the partner's interest through the receipt
of only money, unrealized receivables, or inventory. Since
Reed received only money and inventory, the amount of
recognized loss is the $9,000 difference between the $25,000
basis of his partnership interest and the $11,000 of cash and
$5,000 basis for the inventory received.
67. (c) The requirement is to determine the amount of
loss recognized by Lisa on the complete liquidation of her
one-third partnership interest. A distributee partner can rec-
ognize loss only upon the complete liquidation of the part-
ner's interest through receipt of only money, unrealized re-
ceivables, or inventory. Since Lisa only received cash, the
amount of recognized loss is the $2,000 difference between
the $22,000 adjusted basis of her partnership interest and the
$20,000 of cash received. Since a partnership interest is a
capital asset and Lisa acquired her one-third interest in 2004,
Lisa has a $2,000 long-term capital loss.
68.. (d) The requirement is to determine when a retiring
partner who receives retirement payments ceases to be re-
garded as a partner. A retiring partner continues to be a
partner for income tax purposes until the partner's entire
interest has been completely liquidated through distributions
or payments.
69. (b) The requirement is to determine the treatment
for the payments received by Albin. Payments made by a
personal service partnership to a retired partI;1er that are de-
termined by partnership income are distributive shares of
partnership income, regardless of the period over which they
are paid. Thus, they are taxable to Albin as ordinary in-
come.