At the beginning of the tax year, Melodies basis in the MIP LLC was $60,000, including her $40,000 share of the LLCs liabilities. At the end of the year, MIP distributed to Melodie cash of $10,000 and inventory (basis of $6,000, fair market value of $10,000). In addition, MIP repaid all of its liabilities by the end of the year.

a. What is Melodie's new basis in MIP? What is her basis in the inventory?

b. How would the answers in part (a) change if the distribution is a proportionate liquidating distribution? What is Melodie's gain/loss on the transaction? What is her basis in the inventory?

Please show all your work and explain your answers. Thanks!