Choice "a" is correct. With a liquidating distribution, the partner's basis for the distributed property is the same as the adjusted basis of his partnership interest, first reduced by any monies received. The partner will recognize gain only to the extent that money received exceeds the partner's basis in the partnership.

Note: The basis of the land to Reid is zero, as Reid has no remaining basis in the partnership to allocate to the land (i.e., Reid has exchanged his entire interest in the partnership for the cash and the land).

Choice "b" is incorrect. Gain is recognized because the cash received exceeded the basis in the partnership before the liquidation.

Choice "c" is incorrect. This answer option incorrectly assumes that the adjusted basis of the land reduced the basis in the partnership before the cash received reduced the basis. As mentioned above, cash received must first reduce the basis before any allocation of basis can be made to the remaining non-cash property [$60,000 - $12,000 = $48,000; $48,000 - $61,000 = ($13,000) in excess of basis].

Choice "d" is incorrect. This answer option incorrectly assumes that the fair market value of the land (fair market value would not be used even if cash were not received, however) reduced the basis in the partnership before the cash received reduced the basis. As mentioned above, cash received must first reduce the basis before any allocation of basis can be made to the remaining non-cash property [$60,000 - $14,000 = $46,000; $46,000 - $61,000 = ($15,000) in excess of basis].