At the beginning of the tax year, Melodie’s basis in the MIP LLC was $60,000, including her $40,000 share of the LLC’s liabilities. At the end of the year, MIP

At the beginning of the tax year, Melodie’s basis in the MIP LLC was $60,000, including her $40,000 share of the LLC’s liabilities. At the end of the year, MIP distributed to Melodie cash of $10,000 and inventory (basis of $6,000, fair market value of $10,000). In addition, MIP repaid all of its liabilities by the end of the year. a. If this is a proportionate current distribution, what is the tax effect of the dis- tribution to Melodie and MIP? After the distribution, what is Melodie’s basis in the inventory and in her MIP interest?

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