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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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

A) A partner will never recognize a loss from an operating distribution.
B) A partner will recognize a loss 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 loss 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 loss 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) C) and D)
F) B) and C)

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Question 22

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Jenny has a $54,000 basis in her 50% 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 $80,000 fair value and a $64,000 basis to JM. The land is encumbered with a $30,000 mortgage (JM's only liability) . What is Jenny's basis in the land and her remaining basis in JM after the distribution?

A) $80,000 land basis, $0 JM basis.
B) $64,000 land basis, $0 JM basis.
C) $64,000 land basis, $5,000 JM basis.
D) $80,000 land basis, $5,000 JM basis.

E) All of the above
F) None of the above

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Question 23

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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.

Locke is a 50% 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?

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

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.

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?

Daniel's basis in the DAT Partnership is $135,000. 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?

At the end of last year, Cynthia, a 20% partner in the five-person CYG partnership, has an outside basis of $30,000 including her $15,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $22,500 and the assumption of her share of CYG's debt. CYG has no hot assets. What is the amount and character of Cynthia's recognized gain or loss on the sale?

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

Jackson is a 30% partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash. At the time of the sale, Jackson's basis in JJM is $64,000. JJM does not have any debt or hot assets. What is Jackson's gain or loss on the sale of his interest?

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.

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

Tyson is a 25% 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?

Federico is a 30% 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 §1231assets. Federico will recognize ordinary income of $24,000 on the sale of his partnership interest.

The SSC Partnership balance sheet includes the following assets on December 31 of the current year: Which of SSC's assets are considered hot assets under §751(a) ?

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

Brian is a 25% partner in the BC Partnership. On January 1, BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000) to Brian. BC has no liabilities at the date of the distribution. Brian's basis in his BC partnership interest is $16,000. What is the amount and character of Brian's gain or loss on the distribution?

Zayde is a 1/3 partner in the ARZ partnership with an outside basis of $156,000 on January 1. Zayde sells his partnership interest to Thomas on January 1ˢᵗ for $180,000 cash. The ARZ 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 3 years ago. What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?

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 $90,000 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?