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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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Jaime has a basis in her partnership interest of $50,000 when the partnership distributes (in an operating distribution)two parcels of land to Jaime, each valued at $30,000.Prior to the distribution, the partnership's basis in parcel A is $40,000 and the basis in parcel B is $20,000.Jaime allocates $20,000 of basis to parcel A and $30,000 of basis to parcel B.

A) True
B) False

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Question 22

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Federico is a 30 percent partner in the FRM Partnership when he sells his entire interest to Maria for $98,000.At the time of the sale, Federico's basis in FRM is $74,000.FRM does not have any debt.In addition, FRM's assets include accounts receivable with zero tax basis and $21,000 fair market value at the date of the sale.The remaining assets of the partnership are capital and §1231 assets.Federico will recognize ordinary income of $24,000 on the sale of his partnership interest.

A) True
B) False

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Question 23

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Joan is a one-third partner in the PDJ Partnership.PDJ Partnership uses the proration method to allocate income and losses to partners with varying interests.On May 1, Joan sells her interest to Freddie for a cash payment of $75,000.On January 1, Joan's basis in PDJ is $57,000.PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt income during the first four months of the year.PDJ has the following assets and no liabilities at the sale date: $\begin{array} { c c } &\text { Basis } & \text { Fair Market Value } \\\text {Cash}&\$ 45,000 & \$ 45,000 \\\text {Land held for irvestrnent}&\$ 45,000 & \$ 90,000\end{array}$ What is the amount and character of Joan's gain or loss on the sale?

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

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: $\begin{array}{llll} & \text { Assets:} & \text { Basis } & \text { FMV } \\ \text {Cash } &&\$48,000&\$48,000\\ \text { Larnd held for irvestrnert } &&96,000&132,000\\\end{array}$ $\begin{array}{llll} & \text { Liabilities ard Capital: } & \\ \text { Capital } & &\text { Paul }&48,000\\ &&\text {Kristi } &48,000\\&& \text { David } &48,000\\\end{array}$ If KDP has a §754 election in place, what is Kathy's special basis adjustment?

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: $\begin{array}{llll} \text { } & \text {Basis } & \text {FMV } \\ \text { Cash } &\$100,000&\$100,000\\ \text {Accounts receivable } &\underline{-0-}&\underline{100,000}\\ \text { Total } &\underline{\$100,000}&\underline{\$200,000}\\\end{array}$ $\begin{array}{llcc} \text { Nadine, capital } &\$50,000 \\ \text { Luouis, capital} &\underline{50,000}\\ \text { Total} &\underline{\$100,000}\\\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the 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?

When determining a partner's gain on the sale of partnership interest, the selling partner must include her share of partnership debt relief in the amount realized.

When a partner receives more than a proportionate share of hot assets in a distribution, the transaction is treated as though the partnership distributes a proportionate share of cold assets to the partner and then the partner sells some or all of those cold assets back to the partnership at fair market value in exchange for a portion of the hot assets actually received in the distribution.

Operating distributions completely terminate a partner's interest in the partnership.

Kathy is a 25 percent 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.

Which of the following statements regarding hot assets for purposes of disproportionate distributions is false?

Under what conditions will a partner recognize a gain in a liquidating distribution?

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: $\begin{array}{llll} \text { } & \text {Basis } & \text {FMV } \\ \text { Inventory } &\$40,000&\$60,000\\ \text {Land } &\underline{20,000}&\underline{30,000}\\ \text { Total } &\underline{\$60,000}&\underline{\$90,000}\\\end{array}$ $\begin{array} { l r } \text { Brooke, capital } & \$ 20,000 \\\text { Penelope, capital } & 20,000 \\\text { Amanda, capital } & \underline{20,000} \\\text { Total } & \underline{\$ 60,000}\end{array}$ 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?

Scott is a 50 percent partner in the LS Partnership.Scott has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution.On December 31, Scott receives an operating distribution of $9,000 cash and a parcel of land with a $21,000 fair market value and a $12,000 basis to the partnership.LS has no debt or hot assets.What is the amount and character of Scott's recognized gain or loss? What is Scott's basis in the distributed property? What is Scott's ending basis in his partnership interest?

Doris owns a one-third 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: $\begin{array}{l}\quad \quad \text { Partrership's Basis in}\\\begin{array} { c r c c } &\text { Asset } & { \text { Asset's Fair Market Value } } \\\text { Cash}&\$ 81,000 & \$ 81,000 \\\text { Inventory}& 36,000 & 24,000 \\\text { Land} & 120,000 & 135,000\end{array}\end{array}$ What is the amount and character of Doris's gain or loss on the distribution? What is her basis in the distributed assets?

Tyson is a 25 percent partner in the KT Partnership.On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and land with a fair value of $8,000 (inside basis of $12,000) to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in his KT Partnership interest is $24,000.What is Tyson's basis in the distributed inventory and land?

Riley is a 50 percent 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?

Daniela is a 25 percent 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 her JRD Partnership interest is $20,000.What is the amount and character of Daniela's gain or loss from the distribution?