The Desert Partnership Makes a Proportionate Distribution of Its Assets

Multiple Choice

The Desert Partnership makes a proportionate distribution of its assets to Kenneth, in complete liquidation of his partnership interest.The distribution consists of $60,000 in cash and capital assets with a basis to the partnership of $110,000 and a fair market value of $160,000.None of the payment is for partnership goodwill.At the time of the distribution, Kenneth's partnership basis is $140,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return, it recognizes:

A) Capital gain of $30,000 and increases the basis of its remaining assets by $30,000.
B) Capital loss of $30,000 and decreases the basis of its remaining assets by $30,000.
C) No gain or loss and increases the basis of its remaining assets by $30,000.
D) No gain or loss and decreases the basis of its remaining assets by $30,000.
E) None of the above.