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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 31

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Cash distributions include decreases in a partner's share of partnership liabilities.

A) True
B) False

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Question 32

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Esther and Elizabeth are equal partners in the EE Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $40,000 basis in their partnership interests including their share of partnership liabilities. On December 31, EE partnership repays $50,000 of debt. What is the amount and character of Esther's recognized gain or loss? What is Esther's remaining basis in EE?

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Esther does not recognize any ...

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Question 33

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Riley is a 50% 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?

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: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$2 7 , 0 0 0 } & \mathbf { \$ 2 7 , 0 0 0 } \\\text { Accounts receivable } & - \mathbf { 0 } - & \mathbf { 1 8 , 0 0 0 } \\\text { Inventory } & \mathbf { 1 0 3 , 5 0 0 } & \mathbf { 1 2 1 , 5 0 0 } \\\text { Equipment } & \mathbf { 2 7 0 , 0 0 0 } & \mathbf { 3 3 7 , 5 0 0 } \\\text { Stock investment } & \underline { \mathbf { 6 7 , 5 0 0 } } & \underline { \mathbf { 9 6 , 0 0 0 } } \\\text { Totals } & \underline { \mathbf {\$ 4 6 8 , 0 0 0 } } & \underline { \underline { \mathbf { 6 0 0 , 0 0 0 } } }\end{array}$ 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?

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

Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a liquidating distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $20,000. What is the amount and character of Tyson's gain or loss from the 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.

Marcella has a $65,000 basis in her 50% partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate current distribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a $40,000 basis to JM. What is Marcella's basis in the inventory and her remaining basis in JM after the distribution?

Which of the following statements regarding disproportionate distributions is false?

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. The 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.

Victor is a 1/3 partner in the VRX partnership with an outside basis of $156,000 on January 1. Victor sells his partnership interest to Raj on January 1st for $200,000 cash. The VRX Partnership has the following assets and no liabilities as of January 1: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \$ 27,000 & \$ 27,000 \\\text { Accounts receivable } & - \mathbf { 0 }- & \mathbf { 1 8 , 0 0 0 } \\\text { Inventory } & \mathbf { 1 0 3 , 5 0 0 } & \mathbf { 1 2 1 , 5 0 0 } \\\text { Equipment } & \mathbf { 2 7 0 , 0 0 0 } & \mathbf { 3 3 7 , 5 0 0 } \\\text { Stock investment } & \underline { \mathbf { 6 7 , 5 0 0 } } & \underline { \mathbf { 9 6 , 0 0 0 } } \\\text { Totals } & \underline { \mathbf { \$ 4 68 , 0 0 0 } } & \underline { \$ 600,000 }\end{array}$ The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation. The stock was purchased 7 years ago. What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 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.

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD distributes $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 $0) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is $21,000. What is Daniela's basis in the distributed inventory and accounts receivable?

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

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

Lola is a 35% partner in the LW Partnership. On January 1, LW distributes $39,000 cash to Lola in complete liquidation of her partnership interest. LW has only capital assets and no liabilities at the date of the distribution. Lola's basis in LW is $50,000. What is the amount and character of Lola's gain or loss?

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a 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 JRD is $20,000. What is the amount and character of Daniela's gain or loss from the distribution?

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 $100,000 cash. CDW makes a §754 election and its balance sheet as of December 31 is as follows: $\begin{array}{l}\begin{array} { l r r } &\underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash}&\mathbf { \$ 6 0 , 0 0 0 } & \mathbf { \$ 6 0 , 0 0 0 } \\\text { Capital asset (nondepreciable)}&\underline { \mathbf { 1 2 0 , 0 0 0 } } & \underline { 240,000 } \\\text { Total}&\underline { \mathbf { \$ 8 0 , 0 0 0 } } & \underline { \mathbf { \$ 3 0 0 , 0 0 0 } } \\\end{array}\\\\\begin{array} { l r } \text { Carmello, capital } & \$ 60,000 \\\text { Doug, capital } & 60,000 \\\text { Wendy, capital } & \underline { 60,000 } \\\text { Total } & \underline { \$ 180,000 }\end{array}\end{array}$ What is the amount of Conrad's special basis adjustment? If CDW sells the capital asset next year for $300,000, what is the amount of gain Conrad will recognize because of the sale?

Martha is a 40% partner in the MMM Partnership with an outside basis of $50,000. MMM distributes $40,000 cash and accrual basis accounts receivable with a basis and fair market value of $20,000. Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

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?