Karen is a one-third partner in KLM Partnership and needs a distribution from the partnership to pay her daughters tuition. The partnership, however, does not have any extra cash to distribute. It will distribute land to Karen that has a value of $30,000 and a basis of $25,000 to the partnership. Karens basis in the partnership is $45,000.

(a) How will this distribution be treated for tax purposes?

(b) Assume alternatively that the partnership sells the land for its FMV and distributes the cash to Karen. What are the consequences of the sale and distribution?

(c) Which alternative would you recommend? Explain.