B is corrent. Gain will be recognized by a distributee partner in a nonliquidating distribution if the amount of money received exceeds the partner’s basis for the partnership interest. Additionally, gain or loss may be recognized by a distributee partner if a nonliquidating distribution is disproportionate with respect to the partner’s interest in partnership property. A distribution is disproportionate if the partner receives more than the partner’s share of unrealized receivables and substantially appreciated inventory, and in return relinquishes a share in other assets, or receives more than the partner’s share in capital and Sec. 1231 assets, and in return, relinquishes an interest in the partnership’s unrealized receivables and substantially appreciated inventory. In this case, the Ace Partnership has no unrealized receivables, appreciated inventory, or properties which had been contributed by its partners, so the distribution received by Stone cannot be disproportionate. Since gain will never be recognized in a proportionate noncash distribution of property, Stone recognizes no gain on the distribution and will have a transferred basis of $65,000 in the capital assets received and a basis of $5,000 for his continuing partnership interest.
A is incorrect. Only a money distribution will cause gain recognition.
A is incorrect. Only a money distribution will cause gain recognition.
D is incorrect. Only a money distribution will cause gain recognition.
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