The FABB Partnership distributes a marketable security to 25% partner Fred in complete liquidation of his interest

Question:

The FABB Partnership distributes a marketable security to 25% partner Fred in complete liquidation of his interest in the partnership. Use the following facts to answer the questions that follow:

• The partnership’s basis in the security is $10,000, and its value is $20,000. The partnership did not own any of this particular security following the distribution.

• Fred’s basis in the partnership interest is $5,000 immediately prior to the distribution.

• Fred is a general partner, and capital is a material income-producing factor to the partnership.

• The partnership owns no hot assets.

a. How is the security classified under § 736?

b. What is the amount of the security distribution that is treated as a cash distribution?

c. How much gain does Fred report on the distribution?

d. What is Fred’s basis in the security he receives in the distribution?

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due.... Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...