Under Section 732(b), how is a partner's basis in property received in a complete liquidation of the partnership interest determined?
- The basis equals the fair market value of each asset received, allocated proportionally.
- The basis equals the partnership's adjusted basis in each asset distributed.
- The basis equals zero for all assets received in a liquidating distribution.
- The basis equals the partner's outside basis reduced by any cash received, with the remainder allocated among the distributed assets. (correct answer)
Explanation: Under Section 732(b), in a complete liquidating distribution, the partner's total basis in all distributed property equals the partner's outside basis reduced by any cash received in the same distribution. This remaining basis is then allocated among the non-cash assets under the Section 732(c) ordering rules: first to unrealized receivables and inventory (up to their partnership basis), then to any remaining assets. Answer A (FMV basis) would apply only if gain were fully recognized. Answer B (partnership's adjusted basis) is the rule for current distributions under Section 732(a), subject to the outside basis cap, not the liquidating distribution rule. Answer C ($0 basis) has no basis in the Code.