Under this paragraph (c), A's basis in its partnership interest is allocated first to the inventory items in an amount equal to their adjusted basis to the partnership.
A, therefore, has an adjusted basis in the inventory items of 0.
He receives a current distribution of ,000 cash and property with an adjusted basis to the partnership of ,000.
The basis of the distributed property to partner R is limited to ,000 (,000, the adjusted basis of his interest, reduced by ,000, the cash distributed).
Therefore, after the distribution, A has an adjusted basis of 0 in Asset X and 0 in Asset Y.
B is a one-fourth partner in partnership PRS and has an adjusted basis in its partnership interest of 0.
The distributed inventory items have a basis to the partnership of 0 and a fair market value of 0.
Asset X has an adjusted basis to the partnership of and a fair market value of 0.
Any increase to the basis of distributed property required under paragraph (c)(1)(ii) of this section is allocated first to distributed property (other than unrealized receivables and inventory items) with unrealized appreciation in proportion to each property's respective amount of unrealized appreciation before any increase (but only to the extent of each property's unrealized appreciation).Asset Y has an adjusted basis to the partnership of 0 and a fair market value of .Neither of the assets consists of inventory items or unrealized receivables.Under sections 733 and 705, the basis of A's partnership interest will be reduced by the distribution to ,000 (,000 less ,000 cash, less ,000, the basis of the distributed property to A).Partner R has an adjusted basis of ,000 for his partnership interest.