Which of the following distributions would never result in gain recognition to the recipient partner?
a. A distribution of cash that follows a contribution of appreciated property to the partnership.
b. A distribution of a slightly appreciated marketable security.
c. A distribution of property to a partner who, three years ago, contributed other property with a built-in gain.
d. A distribution to a second partner of property contributed by the first partner two years ago.
e. A proportionate distribution of inventory property.
e
RATIONALE: Choice a. would be treated as a disguised sale. Choice b. would be treated as a cash distribution to the extent of the decrease in the recipient partner's share of appreciation related to the property. Choice c. would be subject to the precontribution gain recognition rules because the property was distributed within seven years after the contribution date. Choice d. would also be subject to the precontribution gain recognition rules because the property was distributed to another partner within seven years following the contribution date. Choice e. would not result in a gain because the inventory takes the lesser of the partnership's basis or the partner's remaining basis before the inventory distribution; because the inventory basis cannot be stepped up, no gain would arise.
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