A taxpayer inherited a partnership which owned 1 building. The Section 754 election was not made. In 2005 the building was sold. In 2006 the partnership was terminated. My understanding is the outside basis should not have been utilized until 2006 when the partnership was terminated. I have a return in front of me which took a different approach. The CPA took the cash received in 2005 and divided it by the total cash received in 2005 and 2006. This percentage was then multiplied times the outside basis and the result was deducted in 2005 with the remainder deducted in 2006. These items were labeled a liquidating distribution. Does this sound right to anyone?