Using the number on the table below determine the tax treatment to the partner who receives the distribution indicated, and then assuming the partnership has made a Section 754 election, determine the Section 734 adjustment, if any. If there is none write “None” or “N/A”
In EACH case the basis of the partner’s interest is $180,000 before the distribution.
The distribution consists of cash, a capital asset, and inventory as shown. If a column is blank then that type of asset was not distributed. The column for “Liquidating” indicates whether the distribution liquidated the partner’s interest or not.
Situation Cash Received Basis of Capital Asset Basis of Inventory Liquidating?
A 20,000 90,000 None Distributed No
B 90,000 180,000 None Distributed Yes
C 100,000 None Distributed 90,000 No
D 100,000 None Distributed 90,000 Yes
E -0- 180,000 30,000 No

Partner gain/loss. Basis to Cash. Basis to Property. Section 734 Adj (amount) if any

From the complete question, it should be noted that section 734 is the distribution of partnership assets to a partner. In this case, the distributee partner gets property in exchange for liquidating the partnership interest.

In a situation whereby the partnership makes distribution and this is required, the partnership will have to increase the inside basis of the retained property by the sum of the gain that's recognized.

This is important in order to prevent the economic gain from being taxed twice.

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