The FABB Partnership distributes a marketable security to 25% partner Fred in complete liquidation..

 
   

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The FABB Partnership distributes a marketable security to 25% partner Fred in complete liquidation of his interest in the partnership. Use the following facts to answer the questions that follow:

• The partnership’s basis in the security is $10,000, and its value is $20,000. The partnership did not own any of this particular security following the distribution.

• Fred’s basis in the partnership interest is $5,000 immediately prior to the distribution.

• Fred is a general partner, and capital is a material income-producing factor to the partnership.

• The partnership owns no hot assets.

a. How is the security classified under § 736?

b. What is the amount of the security distribution that is treated as a cash distribution?

c. How much gain does Fred report on the distribution?

d. What is Fred’s basis in the security he receives in the distribution?