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Exam 15: Dispositions of Partnership Interests and Partnership Distributions

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Question 51

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Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 in cash to Barry.As a result of the distribution,Barry reduces his basis in the partnership interest to $0,has a $60,000 basis in the cash received,and he recognizes a gain of $10,000 on the distribution.

A) True
B) False

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Question 52

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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) None of the above
F) A) and D)

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Question 53

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Hot assets include assets except cash,capital assets and §1231 assets.

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

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

Jason is a 25% partner in the JJM Partnership when he sells his entire interest to Lavelle for $76,000.At the time of the sale,Jason's basis in JJM is $87,000.JJM does not have any debt or hot assets.Jason's will recognize a gain of $11,000 on the sale of his partnership interest.

The SSC Partnership balance sheet includes the following assets on December 31 of the current year:   $\begin{array} { l r r } & { \text { Basis } } & \text { FMV } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\ \text { Accourts receivable } & - 0 - & 60,000 \\\text { Lard } & \underline {90,000 }& \underline {120,000} \\\text { Total }& \underline {\$ 270,000} & \underline {\$ 360,000}\end{array}$ Susan,a 1/3 partner,has an adjusted basis of $90,000 for her partnership interest.If Susan sells her entire partnership interest to Emma for $100,000 cash,what is the amount and character of Susan's gain or loss from the sale?

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?

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

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

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?

Sarah is a 50% partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions.On December 31,Sarah receives a proportionate operating distribution of $20,000 cash.What is the amount and character of Sarah's recognized gain or loss and what is her basis in her 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 proportionate operating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000).What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

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.

Daniela is a 25% partner in the JRD Partnership.On January 1,JRD makes a proportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in her JRD partnership interest is $21,000.What is the amount and character of Daniela's gain or loss from 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.

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

Daniela is a 25% partner in the JRD Partnership.On January 1,JRD makes a proportionate 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 Daniela's basis in the distributed inventory and accounts receivable?

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

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{lrr}\text { Basis } & \text { FMV } \\\text {Cash}&\$ 10,000 & \$ 10,000 \\\text {Unrealized receivables}&\underline { -0- }& \underline { 10,000 }\\\text {Total}&\underline { \$ 10,000}&\underline { \$ 20,000}\end{array}$ 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 Wade's recognized gain or loss?