Under the taxpayer relief act of 1998, the basis allocation for distributed property was modified.

1. Unrealized receiveables and inventory are the first allocation of the distributee partner's basis in their partnership's interest under the new law.
2. If the distributee partner's allocable basis exceeds the basis the partnership had in the distributed unrealized receivables and inventory, that remainig basis is allocated among any other assets to the extent of the partnership's basis in the other distributed assets.
3. If the allocable basis surpasses the partnership's basis in the other distributed assets, it is allocated based on the unrealized appreciation in those assets.
4. Finally, any remaining basis is distributed among those assets based on their comparative fair market value.

Here's a demonstration of how the basis of noncash properties, including tangible and intangible assets, is distributed among partners.

1. Buddy, Jeb, and Bob share equally the ownership of Sunrise Partnership.
2. The partnership has an intangible asset that has an FMV of $800. The printing machine comes with a base price of $300 and an FMV of $2,000. The collecting machine is priced at $150 and has an FMV of $200.
3. Bob's interest in the partnership is capped at $400.
4. Bob's interest is liquidated by the distribution of the intangible asset and collating machine.
5. What are Bob's bases for his intangible asset and collating machine?

To determine Bob's value in intangible assets and machines, we will follow the following steps:

1. Initially allocate $150 for the collating machine.
2. The balance of $250 ($400 - $150) will go towards machines and intangible assets after $150 has been allocated.
3. $850 ($800 + $50) is the basis for unrealized appreciation.
4. To allocate a collating machine. We will divide $50 by $850 to determine the percentage allocated to the machine, and we will also divide $800 by $850 to determine the portion allocated to the intangible asset.

Thus, Maching basis $165:

• Allocated $150.
• Allocated $15 [ ($50/$850=0.05882 x 250 = 15
• Total Bob's basis in machine is $165 ($150 + $15.

Whereas, Intangible's asset's basis is for Bob is $235. It is described below:

$800/850 = 94% x $250 = $235.

Comments:

To determine the basis of distributed property when liquidating a partnership, the first step is to reduce the partner's interest in the partnership by the adjusted basis of tangible assets. Unrealized appreciation is divided between tangible and intangible assets.