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Exam 11: Partnerships: Distributions, Transfer of Interests, and Terminations

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Question 61

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Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. -Distribution of $10,000 cash to a general partner for goodwill when goodwill is provided for in the partnership agreement, and the partnership derives most of its income from services.

A) A payment for the partner's share of partnership income under § 736a) .
B) A payment for the partner's share of partnership property under § 736b) .
C) The payment includes both a § 736a) and a § 736b) element.

D) A) and B)
E) A) and C)

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Question 62

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The MBA Partnership makes a § 736b) cash payment of $20,000 to partner Amanda in liquidation of her interest in the partnership. The partnership owns no hot assets. Amanda's basis in her partnership interest before the distribution was $50,000. If the partnership has a § 754 election in effect, it will record a $30,000 decrease in its inside basis in partnership assets, affecting all the remaining partners in the partnership.

A) True
B) False

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Question 63

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Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current nonliquidating) distribution, cash of $20,000, inventory basis to the partnership of $30,000 and fair market value of $40,000) , and land basis to the partnership of $40,000 and fair market value of $42,000) . In addition, Mack's share of partnership debt decreased by $12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest Including debt share) following the distribution?

Nicholas is a 25% owner in the DDBN LLC a calendar year entity) . At the end of the last tax year, Nicholas's basis in his interest was $50,000, including his $20,000 share of LLC liabilities. On July 1 of the current tax year, Nicholas sells his LLC interest to Anna for $80,000 cash. In addition, Anna assumes Nicholas's share of LLC liabilities, which, at that date, was $15,000. During the current tax year, DDBN's taxable income is $120,000 earned evenly during the year and allocated using the monthly proration method) . Nicholas's share of the LLC's unrealized receivables is valued at $6,000 $0 basis) . At the sale date, what is Nicholas's basis in his LLC interest, how much gain or loss must he recognize, and what is the character of the gain or loss?

Match the following independent descriptions as hot i.e., ordinary income-producing) or nonhot assets with the following statements. -Inventory with a basis of $10,000 and a fair market value of $15,000.

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. -Distribution of $60,000 cash for a partner's share of unrealized receivables when the partner is a limited partner and most of the partnership's income is derived from services.

Tim and Darby are equal partners in the TD Partnership. Partnership income for the year is $60,000. Tim needs cash to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion. If the partners agree, it is acceptable for TD to distribute $8,000 to Tim but no cash or other property to Darby.

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable basis of $0, fair market value of $30,000) , and inventory basis of $50,000, fair market value of $60,000) . Her basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

Generally, no gain is recognized on a proportionate liquidating or current nonliquidating) distribution of noncash property, even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Brittany, Jennifer, and Daniel are equal partners in the BJD Partnership. The partnership balance sheet reads as follows on December 31: $\begin{array}{lrr}&\text { Adjusted } & \\&\text { Basis } & \text { FMV } \\\text { Cash } & \$ 75,000 & \$ 75,000 \\\text { Unrealized receivables } & -0- & 51,000 \\\text { Land } & \underline{45,000} & \underline{63,000} \\\text { Total } & \$ 120,000 & \$ 189,000\\\\\text { Brittany, capital } & \$ 40,000 & \$ 63,000 \\\text { Jennifer, capital } & 40,000 & 63,000 \\\text { Daniel, capital } & 40,000 & 63,000 \\\text { Total } & \$ 120,000 & \$ 189,000\end{array}$ Partner Daniel has an adjusted basis of $40,000 for his partnership interest. If he sells his entire partnership interest to new partner Amber for $73,000 cash, by how much can the partnership step up the basis of Amber's share of partnership assets under §§ 754 and 743b) ?

Randi owns a 40% interest in the capital and profits of the RAY Partnership. Immediately before she receives a proportionate current nonliquidating) distribution from RAY, the basis for her partnership interest is $60,000. The distribution consists of $45,000 in cash and land with a fair market value of $72,000. RAY's adjusted basis in the land immediately before the distribution is $36,000. As a result of the distribution, Randi recognizes a gain of $57,000.

Connie owns a one-third capital and profits interest in the calendar year CAB Partnership. Her adjusted basis for her partnership interest was $120,000 when she received a proportionate current nonliquidating) distribution of the following assets. $\begin{array}{lrr}&\text { Partnership's Basis in Asset} &\text { Asset's Fair Market Value }\\\text { Cash } & \$ 140,000 & \$ 140,000 \\\text { Land held for investment } & 30,000 & 60,000\end{array}$ a. Calculate Connie's recognized gain or loss on the distribution if any. b. Calculate Connie's basis in the land received. c. Calculate Connie's basis for her partnership interest after the distribution.

A distribution can be proportionate even if only one partner receives assets from the partnership.

Misha receives a proportionate current nonliquidating) distribution when the basis of his partnership interest is $60,000. The distribution consists of $80,000 cash and inventory adjusted basis to the partnership of $10,000, fair market value of $20,000) . How much gain or loss does Misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

Taylor's basis in his partnership interest is $140,000, including his $60,000 share of partnership debt. Sandy buys Taylor's partnership interest for $100,000 cash, and she assumes Taylor's $60,000 share of the partnership's debt. If the partnership owns no hot assets, Taylor will recognize a capital loss of $40,000.

A payment to a retiring general partner for his or her share of goodwill of a partnership in which capital is a material income-producing factor is classified as a § 736a) income payment and results in ordinary income to the retiring partner and a current deduction to the partnership as long as the goodwill payment is provided for in the partnership agreement.

The BAM Partnership distributed the following assets to partner Barbie in a proportionate nonliquidating distribution: $10,000 cash, land parcel A basis of $5,000, fair market value of $30,000) and land parcel B basis of $10,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $10,000 and $20,000, respectively, to the two land parcels, and her basis in her partnership interest will be reduced to $0.

George a calendar year taxpayer) owns a 40% interest in the cash basis GLO LLP, which has substantial accounts receivable from its customers. GLO has a natural business year ending March 31. George has found another opportunity and would like to sell his interest on July 1 of the current tax year to new partner Monica. What are some of the issues that should be considered by George, Monica, and GLO?

At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000. She receives a proportionate current nonliquidating) distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable basis of $0, fair market value $40,000) , and land basis of $30,000, fair market value of $50,000) . After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are:

The BR LLC owns an unrealized receivable with a basis of $0 and fair market value of $200,000 plus cash of $200,000. If BREE distributes $20,000 of the receivable to 50% member Brenda and $20,000 of cash to 50% Member Renee, which one of the following statements is true?