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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 1

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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: $\begin{array} { | l | r | r | } \hline \text { Assets: } & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 110,000 & \$ 110,000 \\\hline \text { Stock (imvestment) } & 240,000 & 110,000 \\\hline \text { Land } & 55,000 & 110,000 \\\hline \text { Total } & \$ 405,000 & \$ 330,000 \\\hline\end{array}$ If DAT has a §754 election in place, what is the amount of the special basis adjustment resulting from the distribution to Daniel? What is DAT's basis in its remaining assets? $\begin{array}{l}\text { Liablities and capital: }\\\begin{array} { | c | r | } \hline \text { Capital-Daniel } & \$ 135,000 \\\hline \text {-Alexandra } & 135,000 \\\hline \text {-Travis } & 135,000 \\\hline \text { Total } & \$ 405,000 \\\hline\end{array}\end{array}$

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The partnership has a $80,000 negative s...

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Question 2

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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?

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$5,000 capital gain.
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Question 3

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

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

A partner recognizes a loss when he receives cash and other property with inside bases greater than his outside basis in a liquidating distribution. For loss recognition, two conditions must be met: (1) the distribution includes only cash or hot assets; and (2) the partner's outside basis is greater than the sum of the inside bases of the distributed assets.

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?

If the partnership has hot assets at the time a partnership interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (loss).

Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment with a fair value of $20,000 (inside basis of $10,000) , and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in RD is $48,000. What is Randolph's basis in the distributed investment and land?

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. No loss recognition since asset distributed is not cash or hot assets.

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: $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 60,000 & \$ 60,000 \\\hline \text { Capital asset (nondepreciable) } & \underline { 120,000 } & \underline { 240,000 } \\\hline \text { Total } & \$ 180,000 & \$ 300,000 \\\hline\end{array}$ 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?

Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash and inventory with a fair value of $20,000 (inside basis of $10,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in RD is $27,000. What is the amount and character of Randolph's gain or loss on the distribution?

In an operating distribution, when a partnership distributes property other than money with a basis that exceeds the partner's outside basis, the partner assigns a carryover basis to the distributed assets and recognizes a gain.

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

The SSC Partnership balance sheet includes the following assets on December 31 of the current year: 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 $120,000 cash, how much capital gain and ordinary income must Susan recognize from the sale? $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMN } \\\hline \text { Cash } & \$ 180,000 & \$ 180,000 \\\hline \text { Accounts receivable } & - 0 - & 60,000 \\\hline \text { Land } & 90,000 & 120,000 \\\hline \text { Total } & \$ 270,000 & \$ 360,000 \\\hline\end{array}$

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

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

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prior to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: $\begin{array} { | l | r | r | } \hline \text { Assets: } & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 48,000 & \$ 48,000 \\\text { Land held tor investment } & 96,000 & 132,000 \\\hline\end{array}$ If KDP has a §754 election in place, what is Kathy's special basis adjustment? $\begin{array} { | l | l | r | } \hline \text { Liabilities and Capital: } & & \\\hline \text { Capital } & \text { Paul } & 48,000 \\\hline & \text { Kristi } & 48,000 \\\hline & \text { David } & 48,000 \\\hline\end{array}$

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 current 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?

Joan is a 1/3 partner in the PDJ Partnership. On May 1, Joan sells her interest to Freddie for a cash payment of $75,000. On January 1, Joan's basis in PDJ is $57,000. PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt income during the first four months of the year. PDJ has the following assets and no liabilities at the sale date: What is the amount and character of Joan's gain or loss on the sale?

A partner will recognize a loss from a liquidating distribution when the distribution includes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets. The partner's outside basis must be greater than the sum of the inside bases of the distributed assets for loss recognition.