Meritt Is a Partner in the McPherson Partnership

Multiple Choice

Meritt is a partner in the McPherson Partnership. At the close of the current year, Meritt's basis in the partnership is $25,000.
I.If the partnership distributes cash of $7,500 to Meritt, she must report the cash as income.
II.If the partnership distributes property with a basis of $12,000 and a fair market value of $15,000, Meritt must report $3,000 as income.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.