What is the adjusted basis formula used for determining Binita's ending basis in the partnership?

The correct formula for determining Binita's ending basis in the partnership is based on the fundamental concepts of partnership taxation. The adjusted basis in a partnership is calculated by starting with the beginning basis and then making specific adjustments based on the items that affect a partner's basis throughout the year.

In this case, adding tax-exempt income to the beginning basis increases the total basis because tax-exempt income is not subject to taxation and therefore enhances a partner's economic investment in the partnership. This addition reflects that the partner has more "skin in the game," as they will not have to pay taxes on that income, which means the investment's value in terms of partnership interest has increased.

Additionally, subtracting any cash distributions from the partnership reduces the basis. Cash distributions represent a return of capital to the partner, so they must be deducted to accurately reflect the remaining investment in the partnership. This method ensures that the partner is not taxed again on amounts they have already withdrawn.

By combining these elements correctly—adding tax-exempt income and subtracting cash distribution—the resulting formula accurately reflects Binita's adjusted basis. Thus, the formula involving the beginning basis, tax-exempt income, and minus cash distributions captures the necessary adjustments to reach the correct ending basis.