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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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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?

A) $10,000 investment, $5,000 land
B) $22,000 investment, $11,000 land
C) $20,000 investment, $10,000 land
D) $20,000 investment, $13,000 land

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

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Question 42

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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?

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$11,000 capital loss.
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Question 43

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Federico is a 30% partner in the FRM Partnership when he sells his entire interest to Maria for $98,000. At the time of the sale, Federico's basis in FRM is $74,000. FRM does not have any debt. In addition, FRM's assets include accounts receivable with zero tax basis and $21,000 fair market value at the date of the sale. Federico will recognize ordinary income of $24,000 on the sale of his partnership interest.

Which of the following statements is true regarding partnership operating distributions?

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.

Which of the following statements regarding disproportionate distributions is false?

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 pro-rata 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?

Under the entity concept, a partnership interest is an intangible asset similar to an ownership interest in a corporation. As such, a partnership interest is generally treated as a capital asset, the disposal of which results in capital gain or loss.

Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $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 Tyson's basis in the distributed land?

Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $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 KT is $24,000. What is Tyson's basis in the distributed inventory and land?

Which of the following statements is true regarding partnership operating distributions?

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?

A §754 election is made by a distributee partner for a tax year in which (1) the distributee partner recognizes gain or loss on a distribution from a partnership or (2) the distributee partner's basis in distributed assets differs from the partnership's inside basis in those assets.

Katrina is a one-third partner in the KYR partnership (calendar year-end). Katrina decides she wants to exit the partnership and receives a proportionate distribution to liquidate her partnership interest on January 1. The partnership has no liabilities and holds the following assets as of January 1: Katrina receives one-third of each of the partnership assets. She has a basis in her partnership interest of $110,000. What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

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

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.

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

Kathy is a 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $160,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. Which of the following statements is true?

Tatia's basis in her TRQ partnership interest is $33,000. Tatia receives a distribution of $22,000 cash from TRQ in complete liquidation of her interest. The three partners in TRQ share profits, losses, and capital equally. TRQ has the following balance sheet: a. What is the amount and character of Tatia's recognized gain or loss? What is the effect on the partnership assets? b. If TRQ has a §754 election in place, what is the amount of the special basis adjustment?

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.