Tax effect of the distribution

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At the beginning of the tax year, Monica's basis in the MIP LLC was $100,000, including Monica's $50,000 share of the LLC's liabilities. At the end of the year, MIP distributed to Monica cash of $20,000 and inventory (basis of $10,000 fair market value of $16,000). In addition, MIP repaid all of its liabilities by the end of the year.

a. if this is a proportionate nonliquidating distrubtion, what is the tax effect of the distribution to Monica and MIP? After the distribution, what is Monica's basis in the inventory and in her MIP interest?

b. Would your answers to (a) change if this had been a proportionate liquidating distribution?

Reference no: EM13154129

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