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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 1

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Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $10,000 fair value (inside basis $4,000) , land A with a fair value of $8,000 (inside basis of $12,000) and land B with a fair value of $6,000 (inside basis of $4,000) to Tyson. KT has no liabilities at the date of thedistribution. Tyson's basis in KT is $23,000. What is Tyson's basis in the distributed inventory, land A and land B?

A) $4,000 inventory, $2,000 land A, $1,000 land B.
B) $0 inventory, $2,857 land A, $143 land B.
C) $4,000 inventory, $12,000 land A, $4,000 land B.
D) $10,000 inventory, $8,000 land A, $6,000 land B.

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

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Question 2

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When determining a partner's gain on sale of his partnership interest, the selling partnermust include her share of partnership debt in the amount realized.

A) True
B) False

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Question 3

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

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 $30,000. What is the amount and character of Lola's gain or loss?

Daniel acquires a 30% interest in the PPZ Partnership from Paolo, an existing partner for$39,000 of cash. The PPZ Partnership has borrowed $10,000 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

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

Operating distributions terminate a partner's interest in the partnership.

Jackson is a 30% partner in the JJM Partnership when he sells his entire interest toRhonda 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?

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

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 currentdistribution 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 inJM after the distribution?

Daniel's basis in the DAT Partnership is $135,000. DAT distributes its land to Daniel in complete liquidation o his partnership interest. DAT reports the following balance sheet just before the distribution: 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?

Nadine Fimple is a one-half partner in the NL Partnership with equal inside and outside bases. On January 1, NL distributes accounts receivable with a fair value of $100,000 to Nadine as an operating distribution. NL's balance sheet as of January 1 is as follows: What is the amount and character of Nadine's recognized gain or loss on the distribution?

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.

A partner recognizes a loss when he receives cash and other property with inside bases greater than his outside basis in a liquidating distribution.

The SSC Partnership balance sheet includes the following assets on December 31 of the curr3e4n) t 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 $100,000 cash, what is the amount and character ofSusan's gain or loss from the sale?

The purpose of hot asset rules is to ensure that selling partners recognize all gain or losson the sale of their partnership interests as capital.

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

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes aproportionate, 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?

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prio7r4) to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: If KDP has a §754 election in place, what is Kathy's special basis adjustment?

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.