Timothy is a 35% partner in Total Partnership, calendar-year-end entity. Timothy has outside basis in interest in Total of $198,000, that includes share of the $45,000 of partnership liabilities. On December 31, Total makes proportionate distribution of given assets to Timothy:
|
Basis
|
FMV
|
|
Cash
|
$50,000
|
$50,000
|
|
Inventory
|
65,000
|
75,000
|
|
Land
|
50,000
|
65,000
|
|
Totals
|
$165,000
|
$180,000
|
i) For the operating distribution, prepare tax consequences of distribution to Timothy.
ii) For the liquidating distribution, prepare tax consequences of distribution to Timothy.
iii) Explain similarities and differences between tax consequences of operating distribution and tax consequences of liquidation distribution.