At the beginning of the tax year, Melodie's basis in the MIP LLC was $94,000, including her $61,100 share of the LLC's liabilities. At the end of the year, MIP distributed to Melodie cash of $14,100 and inventory (basis of $11,280, fair market value of $14,100). In addition, MIP repaid all of its liabilities by the end of the year.

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a. If this is a proportionate current distribution, what is the tax effect of the distribution to Melodie and MIP? After the distribution, what is Melodie's basis in the inventory and in her MIP interest?

If this is a proportionate current distribution, the cash distribution plus relief of liabilities

increasedecreasedecrease

Melodie's basis to $fill in the blank e13cdafff012f8d_2.

After the distribution of inventory, what is Melodie's basis in the inventory and in her MIP interest?

Basis in inventory	$fill in the blank e13cdafff012f8d_3
Basis in MIP	$fill in the blank e13cdafff012f8d_4

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If a payment is treated as a distribution from the partnership to the partner, it will fall into one of two categories:

• Liquidating distributions.
• Current distributions.

These distributions may consist of cash or partnership property. Whether a distribution is a liquidating or current distribution depends solely on whether the partner remains a partner in the partnership after the distribution is made.

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b. Would your answers to part (a) change if this had been a proportionate liquidating distribution?

If this had been a proportionate liquidating distribution, then Melodie would have recognized a

gainlossloss

of $fill in the blank , and her basis in the inventory would have been $fill in the blank