Cash basis liquidating distributions
PRS distributes Asset X and Asset Y to B in liquidation of its entire partnership interest.Asset X has an adjusted basis to the partnership and fair market value of 0.Asset X is then allocated 0, the amount of unrealized appreciation in Asset X.Finally, the remaining basis, , is allocated to Assets X and Y in proportion to their fair market values: to Asset X (400/500 × ), and to Asset Y (100/500 × ).The distributed inventory items have a basis to the partnership of 0 and a fair market value of 0.Asset X has an adjusted basis to the partnership of and a fair market value of 0.If the required increase exceeds the amount of unrealized appreciation in the distributed property, the excess is allocated to the distributed property (other than unrealized receivables or inventory items) in proportion to the fair market value of the distributed property.
B is a one-fourth partner in partnership PRS and has an adjusted basis in its partnership interest of 0.A is a one-fourth partner in partnership PRS and has an adjusted basis in its partnership interest of 0.PRS distributes inventory items and Assets X and Y to A in liquidation of A's entire partnership interest.Under this paragraph (c), B's basis is first assigned to the distributed property to the extent of the partnership's basis in each distributed property. Because the aggregate adjusted basis of the distributed property, 0, exceeds the basis to be allocated, 0, a decrease of 0 in the basis of the distributed property is required.Assets X and Y have unrealized depreciation of zero and 0, respectively. After the distribution, B has an adjusted basis of 0 in Asset X and in Asset Y.
Asset Y has an adjusted basis to the partnership of $150 and a fair market value of $50.