Cari Hawkins is a 50% partner in the calendar year Hawkins-Lopez Partnership. On January 1, 2021, her basis in her partnership interest is $160,000. The partnership has no taxable income or loss for the current year. In a current distribution on December 15, the partnership distributes $120,000 cash to Cari and inventory proportionately to all partners. Cari’s share of the inventory has an inside basis of $50,000 (fair market value of $60,000).

In January 2022, Cari asks your advice regarding treatment of 2021 operations and distributions. Using the format 

(1) Facts, 

(2) Issues, 

(3) Conclusion and analysis, draft a letter to Cari at the Hawkins-Lopez Partnership (1622 E. Henry Street, St. Paul, MN 55118). Without including specific citations, your letter should address the following points and provide enough information for the client to understand the applicable tax provisions.

a. How much gain or loss does the partnership recognize as a result of 2021 activities?

b. How much gain or loss must Cari recognize in 2021?

c. What is Cari’s basis in inventory received?

d. What is Cari’s basis in her partnership interest at the end of 2021?

e. What other considerations should Cari and/or the partnership address? Explain.