Evaluate Tax Treatment Of LLCs Practice Test

LL LLC is classified as a partnership and is dissolving in Year 4. In liquidation, member L receives cash of $30,000 and inventory with the LLC’s adjusted basis of $10,000; immediately before liquidation, L’s outside basis is $35,000. Under the partnership liquidation rules (including sections 731 and 732), what is L’s basis in the distributed assets after liquidation (assuming no hot asset ordinary income is triggered by other rules and focusing only on basis computation)?

YZ LLC is a multi-member LLC classified as a partnership. In Year 1, the LLC borrows $200,000 on a recourse basis and uses the proceeds in the business; the members share profits and losses 70% to Y and 30% to Z. Under Internal Revenue Code section 752, which statement best describes the effect of the recourse liability on the members’ outside bases (ignoring any special allocation provisions)?