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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 51

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Randolph is a 30percent partner in the RD Partnership. On January 1, RD distributes $23,000 cash and inventory with a fair value of $30,000 (inside basis of $15,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in his RD Partnership interest is $41,200. What is the amount and character of Randolph's gain or loss on the distribution?

A) $0 gain or loss.
B) $11,800 capital gain.
C) $11,800 capital loss.
D) $3,200 capital loss.

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

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Question 52

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Carmello is a one-third partner in the CDW Partnership with equal inside and outside bases. On December 31, Carmello sells his interest to Conrad for $104,000 cash. CDW makes a §754 election and its balance sheet as of December 31 is as follows: (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) What is the amount and sign (positive or negative)of Conrad's special basis adjustment? If CDW sells the capital asset next year for $298,800, what is the amount of gain Conrad will recognize because of the sale?

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Question 53

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Federico is a 30percent 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.

Daniel acquires a 30percent interest in the PPZ Partnership from Paolo, an existing partner, for $39,500 of cash. The PPZ Partnership has borrowed $10,500 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

Marty is a 40percent 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?

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

In the sale of a partnership interest, a selling partner will recognize ordinary income (rather than capital gain)when the partnership assets include cash and land held for five years as an investment.

Hot assets include assets other than cash, capital assets, and §1231 assets.

Daniel's basis in the DAT Partnership is $139,000. DAT distributes its land to Daniel in complete liquidation of his partnership interest. DAT reports the following balance sheet just before the distribution: If DAT has a §754 election in place, what is the amount and sign (positive or negative)of the special basis adjustment resulting from the distribution to Daniel? What is DAT's basis in its remaining assets?

Which of the following statements regarding disproportionate distributions is false?

The PW Partnership's balance sheet includes the following assets immediately before it liquidates: In complete liquidation, PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners) . Pamela and Wade each have an outside basis in PW equal to $5,000. PW has no liabilities at the time of the liquidation. What is the amount and character of Pamela's recognized gain or loss?

The SSC, a cash-method partnership, has a balance sheetthat includes the following assets on December 31 of the current year: Susan, a one-third partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $120,000 cash, how much capital gain and ordinary income must Susan recognize from the sale?

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 partner recognizes gain when she receives cash in excess of her outside basis in a liquidating distribution.

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

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 allof 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.

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.

Locke is a 50percent partner in the LS Partnership. Locke has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution. On December 31, Locke receives an operating distribution of $30,000 cash. LS has no debt or hot assets. What is the amount and character of Locke's recognized gain or loss? What is Locke's ending basis in his partnership interest?

Heidi and Teresa are equal partners in the HT Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $50,000 basis in their partnership interests. On December 31, the partnership makes a pro rata operating distribution to Heidi of $60,000 cash. What is the amount and character of Heidi's recognized gain or loss? What is Heidi's remaining basis in HT?

Jenny has a $59,700 basis in her 50 percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Jenny of a parcel of land with an $92,500 fair value and a $70,100 basis to JM. The land is encumbered with a $33,050 mortgage (JM's only liability) . What is Jenny's basis in the land and her remaining basis in JM after the distribution?