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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 31

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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.

A) True
B) False

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Question 32

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Which of the following statements regarding hot assets for purposes of disproportionate distributions is false?

A) The definition of hot assets for distributions and sales of partnership interests differs.
B) Hot assets include all inventory.
C) Hot assets include substantially appreciated inventory.
D) Hot assets include unrealized receivables.

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

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Question 33

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Doris owns a 1/3 capital and profits interest in the calendar-year DB Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $20,000. On that date, she receives an operating distribution of her share of partnership assets shown below: What is the amount and character of Doris' gain or loss on the distribution? What is her basis in the distributed assets?

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

Sarah is a 50% 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 aproportionate 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?

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 $105,000 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?

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?

Which of the following is false concerning special basis adjustments under Section 754?

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

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.

Kathy is a 25% partner in the KDP Partnership and receives a parcel of land with a fair value of $150,000 (inside basis of $100,000) in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $200,000. KDPcurrently has a §754 election in effect and has no hot assets or liabilities. What is KDP's special basis adjustment from the distribution?

Federico is a 30% partner in the FRM Partnership when he sells his entire interest toMaria 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.

Hot assets include assets except cash, capital assets and §1231 assets.

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a proportionate 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 Daniela's basis in the distributed inventory and accountsreceivable?

Shauna is a 50% partner in the SH Partnership. Shauna sells one-half of her interest to Kara 3f7o) r$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: What is the amount and character of Shauna's gain or loss on the sale?

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

BPA Partnership is an equal partnership in which each of the partners has a basis in her partnership interest of$20,000. BPA reports the following balance sheet: a. Identify the hot assets if Brooke decides to sell her interest in BPA. b. Are these assets "hot" for purposes of distributions?c. If BPA distributes the land to Brooke in complete liquidation of her partnership interest, what tax issuesshould be considered?

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?

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?