FINANCE- This is a Federal Tax class question.

This is a Federal Tax class question.The Sparrow Partnership plans to distribute $200,000 cash to its partners at the end of the year. Marjorie is a 40 percent partner and would receive $80,000. Her basis in the partnership is only $10,000, however, so she would recognize a $70,000 gain if she receives the proposed cash distribution.Marjorie has asked Sparrow instead to purchase a parcel of land that she has found on which she will build her retirement residence. The partnership then will distribute that land to her. Under the partnership distribution rules, Marjorie would take a $10,000 basis in the land worth $80,000. Her basis in the partnership would be reduced to $0, but recognition of the $70,000 gain is deferred.Do you think this is an appropriate transaction? Why.

 

 

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