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


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

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

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Tyson is a 25percent 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?


A) $8,000 inventory, $12,000 land.
B) $16,000 inventory, $8,000 land.
C) $0 inventory, $8,000 land.
D) $8,000 inventory, $0 land.

E) B) and C)
F) B) and D)

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

A) True
B) False

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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.

A) True
B) False

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Randolph is a 30percent 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 his RD Partnership interest is $37,000. What is the amount and character of Randolph's gain or loss on the distribution?


A) $0 gain or loss.
B) $11,000 capital gain.
C) $11,000 ordinary income.
D) $11,000 capital loss.

E) A) and D)
F) A) and C)

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Riley is a 50percent 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) Cash $6,000, land $0.
B) Cash $6,000, land $8,000.
C) Cash $6,000, land $14,000.
D) Cash $6,000, land $22,000.

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

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Jackson is a 30percent 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) $48,000 capital gain.
B) $48,000 ordinary income.
C) $24,000 capital gain and $24,000 ordinary income.
D) Gain or loss cannot be determined.

E) B) and D)
F) C) and D)

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

A) True
B) False

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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: 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? 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? 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?

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a. Inventory is considered "hot" for pur...

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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) A) and C)
F) All of the above

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


A) Hot assets include unrealized receivables.
B) Hot assets include any inventory.
C) Hot assets include substantially appreciated inventory.
D) The definition of hot assets for distributions and sales of partnership interests differs.

E) A) and D)
F) C) and D)

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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?

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Locke recognizes no gain or lo...

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Randolph is a 30percent partner in the RD Partnership. On January 1, RD distributes $25,000 cash and inventory with a fair value of $30,400 (inside basis of $15,200) 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 $43,700. What is the amount and character of Randolph's gain or loss on the distribution?


A) $0 gain or loss.
B) $11,700 capital gain.
C) $11,700 capital loss.
D) $3,500 capital loss.

E) B) and D)
F) C) and D)

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Riley is a 50percent 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 the amount and character of Riley's recognized gain or loss and what is his basis in his partnership interest?


A) $0 gain, $36,000 basis.
B) $0 gain, $42,000 basis.
C) $0 gain, $50,000 basis.
D) $0 gain, $56,000 basis.

E) C) and D)
F) All of the above

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

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Which of the following statements regarding the sale of a partnership interest is false?


A) The seller's primary tax concern in a partnership interest sale is calculating the amount and character of gain or loss on the sale.
B) The selling partner determines the gain or loss as the difference between the amount realized and her outside basis in the partnership.
C) Hot assets change the character of a gain on the sale from ordinary income to capital gain.
D) Any debt relief increases the amount the partner realizes from the sale.

E) A) and D)
F) A) and B)

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Which of the following is false concerning special basis adjustments under Section 754?


A) Special basis adjustments are intended to eliminate discrepancies between inside and outside bases.
B) Special basis adjustments are an annual election made by the partnership.
C) Special basis adjustments can occur when a new investor purchases a partnership interest.
D) Special basis adjustments can occur when a partner recognizes a gain or loss from a distribution.

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

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Joan is a 30percent partner in the OJT Partnership when she sells her entire interest to Crissy for $100,000 cash. At the time of the sale, Joan's basis in OJT is $63,000 (which includes her $10,000 share of OJT liabilities). OJT does not have any hot assets. What is the amount and character of Joan's gain or loss on the sale?

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$47,000 capital gain. Joan's g...

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Which of the following statements regarding disproportionate distributions is false?


A) A disproportionate distribution occurs when a partner receives more than his proportionate share of the partnership's hot assets.
B) A disproportionate distribution occurs when a partner receives less than his proportionate share of the partnership's hot assets.
C) The tax provisions related to disproportionate distributions attempt to preserve the partners' share of ordinary income potential.
D) Disproportionate distributions will only occur in liquidating distributions.

E) A) and D)
F) A) and C)

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Which of the following statements is false concerning partnership liquidating distributions?


A) A partner who receives a liquidating distribution can retain an interest in the partnership.
B) A partnership agreement may restrict the sale of a partnership, making a liquidating distribution the only way a partner can close out his interest in the partnership.
C) Liquidating a single partner's interest is similar in concept to a corporate redemption of a shareholder's interest.
D) None of these statements are false.

E) B) and C)
F) B) and D)

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