Answers:

39.a(1) $45,000 ordinary income. $5,000 capital gain.

39.a(2) $45,000 deduction by LLP.

39.a(3) Partnership 754 election; $5,000 step-up.

39.b(1) $25,000 ordinary income. $25,000 capital gain.

39.b(2) No deduction by LLP.

39.b(3) Section 754 election by LLP for Jess.

I just need to understand how to work it out.

39. LO.6, 7, 9 The December 31 balance sheet of the GAB LLP reads as follows. Adjusted Basis FMV Cash Receivables Capital assets Total Gina, capital Adelle, capital Britney, capital Total $300,000 -0- 60,000 $360,000 $ 90,000 $300,000 100,000 80,000 $480,000 90,000 $360,000 240,000 120,000 $480,000 Capital is not a material income-producing factor for the LLP. Gina is an active (gen- eral) partner and owner of a 25% interest in the LLP's profits and capital. a. On December 31, Gina receives a distribution of $140,000 cash in liquidation of her partnership interest. Nothing is stated in the partnership agreement about goodwill. Gina's outside basis for the partnership interest immediately before the distribution is $90,000. (1) How much is Gina's recognized gain from the distribution? What is the character of the gain? (2) How much can GAB claim as a deduction? (3) What action might the partnership want to take? b. Now assume instead that Gina sells her partnership interest to Jess for $140,000 of cash. (1) What is the amount and character of Gina's gain? (2) What deductions can be claimed by the LLP? (3) What action might Jess request of the partnership