Jerome's basis in his partnership interest is $50,000. Jerome receives a pro rata liquidating distribution consisting of $10,000 cash, land with a basis of $40,000 and a fair market value of $60,000, and his proportionate share of inventory with a basis of $30,000 to the partnership and a fair market value of $50,000. Assume that the partnership also liquidates.
a. How much gain or loss, if any, must Jerome recognize as a result of the distribution?
b. What basis will Jerome take in the inventory and land?
c. If Jerome sells the land two years later for $50,000, what are the tax consequences to him?
d. What are the tax consequences to the partnership as a result of the liquidating distribution?
e. Is any planning technique available to the partnership to avoid any "lost basis" results? Explain.
f. Would your answers to parts (b) and (e) change if this had been a non-liquidating distribution? Explain.