Michelle has a basis in her partnership interest of $85,000. In a proportionate liquidating distribution of the partnership, Michelle receives $5,000 cash and a car (a 1231 asset to the partnership) having a basis of $20,000 to the partnership and a fair market value of $30,000. For our purposes, disregard any potential depreciation recapture on the car. If there is no gain or loss or if an amount is zero, enter "0".

a. How much loss, if any, may Michelle recognize on the distribution? Michelle recognizes of $ .

b. What basis will Michelle take in the car? $

c. Suppose Michelle's 18-year-old son uses the car for his personal use for one year before Michelle sells it for $28,000.

(1) Does Michelle recognize any gain or loss? Michelle recognizes of $

(2) Complete the paragraph below that outlines possible tax planning procedures should be considered.

When a partner is to receive a liquidating distribution and the full basis of the interest will not be recovered, the partner's capital loss can be ensured by providing that the only asset(s) received by the partner ___ (is cash/are only cash, unrealized receivables, and inventory/are only unrealized receivables and inventory)?, . Another alternative would be to place the car in use in another trade or business. The loss would convert from ______ into ________ .