Scott owns a 30% interest in the capital and profits of the SOS Partnership. Immediately before he receives a proportionate nonliquidating distribution from SOS, the basis of his partnership interest is $40,000 . The distribution consists of $30,000 in cash and land with a fair market value of $80,000 . SOS's adjusted basis in the land immediately before the distribution is $50,000 . As a result
of the distribution, Scott recognizes no gain or loss and his basis in the land is $10,000.
a. True
b. False
Indicate whether the statement is true or false
True
RATIONALE: Under ยง 731(a) gain is recognized by a distributee partner in a nonliquidating distribution only if the cash received (including marketable securities or liability relief treated as cash) exceeds the basis of the partner's interest. Because Scott received cash of only $30,000, no gain results. Scott's basis in the land is limited to $10,000, and his interest basis is reduced to zero.
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