Hi, I was reading IRS Publication 541 and 731 and would appreciate clarification on the following:

Marketable securities treated as money. Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner.
Question: the marketable security (the stock) was not distributed, the stock was sold by the Partnership and the proceeds (cash/check) were distributed to the Partner who contributed the stock.

The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of:
1. The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over
2. The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1).

Loss on distribution. A partner does not recognize loss on a partnership distribution unless all the following requirements are met.
The adjusted basis of the partner's interest in the partnership exceeds the distribution.
The partner's entire interest in the partnership is liquidated.
The distribution is in money, unrealized receivables, or inventory items
Question: For discussion purposes, I combined these 2 sections and let us assume that both the Partners contributions and the Partners distributive share of the gain, are both 100%.
I don’t know if I under this, assume that there are 3 stocks, Stock “A” cost basis $100, Stock “B” cost basis $400 and Stock “C cost basis $1,000 and let’s assume that the current FMV for each of stocks is $600 so the total cost basis for all 3 stocks is $1,500 (“A” $100, “B” $400 and “C” $1,000) and the FMC for all 3 stocks is $1,800 (“A” $600,” B” $600 and “C” $600.)
So individually, “A” would have an unrealized GAIN of $400, “B” would have an unrealized GAIN of $200 and “C” would have an unrealized LOSS of $200.
What would be the effect to the Partner in these 2 scenarios:
(1) if the Partnership sold stock “A” for a $400 GAIN and
(2) if the Partnership sold stock “C” for a $200 LOSS?

• Would the Partner be able to receive a distribution in BOTH cases ($400 gain for the sale of Stock “A” and $200 Loss for the sale of Stock “C”)?
• Does the Partner claim a $400 Profit on his Form 1040 and pay Capital Gains tax on the $400 profit?
• Does the Partner claim a $200 Short Term Capital Loss on his Form 1040 (for example purposes let’s that this is a STCL , and deduct $200 from his Ordinary Income (again to avoid confusion, let’s assume that the STCL are < $3,000).

Thank you for your help,
Bob