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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 51

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Which of the following is true concerning a partner's basis in assets (other than money) distributed in an operating distribution?

A) A partner's bases in the distributed assets will be greater than the partnership's bases in the assets.
B) A partner's bases in the distributed assets will be equal to the partnership's bases in the assets.
C) A partner's bases in the distributed assets will be less than or equal to the partnership's bases in the assets.
D) None of the statements are true.

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

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Question 52

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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.

A) True
B) False

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Question 53

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Jason is a 25 percent 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 will recognize a gain of $11,000 on the sale of his partnership interest.

Unrealized receivables include accounts receivable for which of the following partnerships?

Inventory is substantially appreciated if the fair market value of all inventory items exceeds 100 percent of their basis to the partnership.

Randolph is a 30 percent partner in the RD Partnership.On January 1, RD distributes $15,000 cash, inventory 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 his RD Partnership interest is $37,000.What is Randolph's basis in the distributed inventory and land?

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.

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

Zayde is a one-third partner in the ARZ Partnership, with an outside basis of $156,000 on January 1.Zayde sells his partnership interest to Thomas on January 1 for $180,000 cash.The ARZ Partnership has the following assets and no liabilities as of January 1: $\begin{array}{llll} & \text { Basis } &\text { FMV } \\ \text { Cash } &\$27,000&\$27,000\\ \text {Accourts receivable } &-0-&18,000\\ \text {Inveritory } &103,500&121,500\\ \text { Equipment } &270,000&337,500\\ \text {Stock irvestrnent } &\underline{67,500}&\underline{62,500}\\\text {Totals}&\underline{\$468,000}&\underline{\$566,500}\end{array}$ The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation.The stock was purchased three years ago.What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?

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: $\begin{array}{lrr}& {\text { Basis }} & \text { FMV } \\ \text { Cash } & \$ 180,000 & \$ 180,000 \\\text { Accounts receivable }& -0- & 240,000 \\\text { Stock investment } & 75,000 & 120,000 \\\text { Land } &\underline{ 300,000 }& \underline{360,000} \\\text { Totals } & \underline{\$ 555,000} &\underline{ \$ 900,000}\end{array}$ Katrina receives one-third of each of the partnership assets.She has a basis in her partnership interest of $250,000.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 liquidating distributions is true?

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

Sarah is a 50 percent 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?

Daniel acquires a 30 percent 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 a hot asset?

Shauna is a 50 percent partner in the SH Partnership.Shauna sells one-half of her interest to Kara for $60,000 cash.Just before the sale, Shauna's basis in her entire partnership interest is $150,000, including her $60,000 share of the partnership liabilities.SH's assets on the sale date are as follows: $\begin{array} { l r r } & { \text { Basis } } & { \text { FMV } } \\\text { Cash } & \$ 80,000 & \$ 80,000 \\\text { Inventory } & 60,000 &180,000 \\ \text { Land held for investment } & \underline{160,000 }&\underline{100,000} \\\text { Total }& \underline{\$ 300,000} & \underline{\$ 360,000} \\\end{array}$ What is the amount and character of Shauna's gain or loss on the sale?

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).

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 PW Partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{c}\begin{array}{lll}\\\text { Cash } \\\text { Urrealized receivables } \\\text { Total }\end{array}\begin{array}{lll}\text { Basis}\\ \$ 10,000\\\underline{-0-}\\\underline{\$ 10,000}\end{array}\begin{array}{lll}\text {FMV}\\ \$ 10,000\\\underline{10,000}\\\underline{\$ 20,000}\end{array}\end{array}$ 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 Pamela's recognized gain or loss?

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: $\begin{array}{c}\begin{array}{lll} \text { Assets:}\\ \text { Cash}\\ \text { Stock (investment)}\\ \text { Land}\\ \text { Totals}\end{array}\begin{array}{r} \text { Basis}\\\$ 110,000\\240,000\\\underline{55,000}\\\underline{ \$ 405,000}\end{array}\begin{array}{l}\text {FMV}\\\$ 110,000 \\110,000\\\underline{110,000}\\\underline{ \$ 330,000}\end{array}\end{array}$ $\begin{array}{l}\text { Liabilities ard capital: }\\\begin{array} { l l r } \text { Capital } & \text {-Dariel } & \$ 135,000 \\& \text {-Alexarddra } & 135,000 \\& - \text { Travis } &\underline{ 135,000} \\\text { Totals } & & \underline{\$ 405,000}\end{array}\end{array}$ If DAT has a §754 election in place, what is the amount and sign (positive or negative)of the special basis adjustment resulting from the distribution to Daniel? What is DAT's basis in its remaining assets?