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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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Tyson, a one-quarter partner in the TF Partnership, receives a proportionate distribution of $70,000 to liquidate his partnership interest on January 1. Tyson's outside basis is $75,000 including his $10,000 share of TF's liabilities. TF does not hold any hot assets. What is the amount and character of Tyson's recognized gain or loss?

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$5,000 capital gain.
The gain ...

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Question 42

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Which of the following assets would not be classified as hot assets?

A) Inventory.
B) Depreciation recapture.
C) Cash.
D) Accounts receivable for a cash method taxpayer.

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

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Question 43

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A partner's debt relief from the sale of a partnership interest will decrease his outside basis.

Marcella has a $65,000 basis in her 50% partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a $40,000 basis to JM. What is Marcella's basis in the inventory and her remaining basis in JM after the distribution?

Kathy is a 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $160,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. Which of the following statements is true?

A partner that receives cash in an operating distribution recognizes loss if the cash distributed is less than the partner's outside basis in the partnership immediately before the distribution.

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

Riley is a 50% partner in the RF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Riley receives a proportionate operating distribution of $6,000 cash and a parcel of land with a $14,000 fair value and an $8,000 basis to RF. What is Riley's basis in the distributed property?

A disproportionate distribution is a distribution in which the partner's share of the partnership's hot assets either increases or decreases as a result of the distribution.

The SSC Partnership balance sheet includes the following assets on December 31 of the current year: Susan, a 1/3 partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $100,000 cash, what is the amount and character of Susan's gain or loss from the sale?

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?

Marty is a 40% owner of MB Partnership. Marty has decided to sell his interest in the business to Emilio for $100,000 cash plus the assumption of his share of MB's liabilities. Assume Marty's inside and outside basis in MB are equal. MB shows the following balance sheet as of the sale date: What is the amount and character of Marty's recognized gain or loss?

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

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?

In which type of distribution may a partner recognize a loss on the distribution?

Victor is a 1/3 partner in the VRX partnership with an outside basis of $156,000 on January 1. Victor sells his partnership interest to Raj on January 1^st for $200,000 cash. The VRX Partnership has the following assets and no liabilities as of January 1: The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation. The stock was purchased 7 years ago. What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

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 his KT partnership interest is $20,000. What is the amount and character of Tyson's gain or loss from the distribution?

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

Tyson, a one-quarter partner in the TF Partnership, receives a proportionate distribution to liquidate his partnership interest on January 1. The distribution consists of $70,000 cash and inventory with a fair value of $40,000 (inside basis is $22,000). Tyson's outside basis is $105,000 including his $10,000 share of TF's liabilities. What is the amount and character of Tyson's recognized gain or loss? What is Tyson's basis in the distributed inventory?

A partner will recognize a loss from a liquidating distribution when the distribution includes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets.