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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000.Just prior to the sale,Paul's outside and inside bases in KDP are $48,000.KDP's balance sheet includes the following: If KDP has a §754 election in place,what is Kathy's special basis adjustment?

A) $0.
B) $36,000.
C) $12,000.
D) None of the choices are correct.

E) A) and B)
F) A) and C)

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Question 42

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Under which of the following circumstances will a partner recognize a gain from an operating distribution?

A) A partner will never recognize a gain from an operating distribution.
B) A partner will recognize a gain from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest.
C) A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest.
D) A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

E) B) and D)
F) None of the above

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Question 43

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Inventory is substantially appreciated if the fair market value of all inventory items exceeds 100% of their basis to the partnership.

Randolph is a 30% partner in the RD Partnership.On January 1,RD distributes $26,000 cash to Randolph in complete liquidation of his interest.RD has only capital assets and no liabilities at the date of the distribution.Randolph's basis in RD is $37,000.What is the amount and character of Randolph's gain or loss on the distribution?

Under which of the following circumstances will a partner recognize a loss from an operating distribution?

Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000.TDW distributes $15,000 of cash in complete liquidation of Ted's interest.Ted recognizes a capital loss of $5,000 on the distribution.

Daniela is a 25% partner in the JRD Partnership.On January 1,JRD makes a proportionate,liquidating distribution of $16,000 cash,inventory with a $16,000 fair value (inside basis $8,000) ,and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in JRD is $20,000.What is the amount and character of Daniela's gain or loss from the distribution?

A partner recognizes a loss when he receives cash and other property with inside bases greater than his outside basis in a liquidating distribution.

Doris owns a 1/3 capital and profits interest in the calendar-year DB Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $20,000.On that date,she receives an operating distribution of her share of partnership assets shown below: What is the amount and character of Doris' gain or loss on the distribution? What is her basis in the distributed assets?

Tatia's basis in her TRQ partnership interest is $33,000.Tatia receives a distribution of $22,000 cash from TRQ in complete liquidation of her interest.The three partners in TRQ share profits,losses,and capital equally.TRQ has the following balance sheet: a.What is the amount and character of Tatia's recognized gain or loss? What is the effect on the partnership assets? b.If TRQ has a §754 election in place,what is the amount of the special basis adjustment?

Tyson is a 25% partner in the KT Partnership.On January 1,KT makes a proportionate,liquidating distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000) to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in KT is $20,000.What is the amount and character of Tyson's gain or loss from the distribution?

A §754 election is made by a distributee partner for a tax year in which (1)the distributee partner recognizes gain or loss on a distribution from a partnership or (2)the distributee partner's basis in distributed assets differs from the partnership's inside basis in those assets.

Nadine Fimple is a one-half partner in the NL Partnership with equal inside and outside bases.On January 1,NL distributes accounts receivable with a fair value of $100,000 to Nadine as an operating distribution.NL's balance sheet as of January 1 is as follows: What is the amount and character of Nadine's recognized gain or loss on the distribution?

If the partnership has hot assets at the time a partnership interest is sold,the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (loss).

BPA Partnership is an equal partnership in which each of the partners has a basis in her partnership interest of $20,000.BPA reports the following balance sheet: a.Identify the hot assets if Brooke decides to sell her interest in BPA. b.Are these assets "hot" for purposes of distributions? c.If BPA distributes the land to Brooke in complete liquidation of her partnership interest,what tax issues should be considered?

Catherine is a 30% partner in the ACW Partnership with an outside basis of $20,000.ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest.Catherine recognizes a capital loss of $2,000 on the distribution.

The VRX Partnership (a calendar year-end entity)has the following assets and no liabilities: The equipment was purchased for $360,000 and VRX has taken $90,000 of depreciation.The stock was purchased 7 years ago.What are VRX's hot assets for purposes of a sale of partnership interest?

The partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

Which of the following statements is true regarding partnership operating distributions?

Katrina is a one-third partner in the KYR partnership (calendar year-end).Katrina decides she wants to exit the partnership and receives a proportionate distribution to liquidate her partnership interest on January 1.The partnership has no liabilities and holds the following assets as of January 1: Katrina receives one-third of each of the partnership assets.She has a basis in her partnership interest of $250,000.What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?