Brown, a 50% partner in Brown & White, received a distribution of $12,500 in the current year. The partnership's income for the year was $25,000. What is the character of the payment that Brown received?
Rule: IRC Section 731 controls the taxability of partnership distributions. A partner who receives a distribution from a partnership realizes gain only to the extent that he receives cash in excess of the adjusted basis of his interest in the partnership immediately before the distribution. Choice "B" is correct. This distribution is a current distribution (a distribution other than in liquidation of an entire partnership interest). Brown is a 50% partner and he/she received ½ of the partnership's income in cash.Choice "d" is incorrect. There is nothing in the question that indicates that the distribution is a liquidating distribution, partial or not.Choice "c" is incorrect. There is nothing in the question that indicates that the distribution is a liquidating distribution of any kind.Choice "a" is incorrect. This distribution is not a disproportionate distribution since Brown is a 50% partner and he/she received ½ of the partnership's income.
