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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a liquidating 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 the amount and character of Tyson's gain or loss from the distribution?

A) $0
B) $4,000 capital gain
C) $12,000 ordinary income
D) $12,000 capital gain

E) B) and C)
F) All of the above

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Question 42

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

A) True
B) False

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Question 43

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Under what conditions will a partner recognize a gain in a liquidating distribution?

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

The SSC Partnership balance sheet includes the following assets on December 31 of the current year: $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 180,000 & \$ 180,000 \\\hline \text { Accounts receivable } & - 0 - & 60,000 \\\hline \text { Equipment } ( \text { cost } = \$ 100,000 ) & 40,000 & 50,000 \\\hline \text { Land } & 90,000 & 120,000 \\\hline \text { Total } & \underline { \$ 310,000 } & \$ \$ 410,000 \\\hline\end{array}$ Which of SSC's assets are considered hot assets under §751(a) ?

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?

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?

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. KDP currently has a §754 election in effect and has no hot assets or liabilities. What is KDP's special basis adjustment from the distribution?

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD distributes $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 $0) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is $21,000. What is Daniela's basis in the distributed inventory and accounts receivable?

Under which of the following circumstances will a selling partner's capital account not carry over to the purchaser of the partnership interest?

Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $26,000 cash to Randolph in complete liquidation of his interest. RD has only capital assets and no liabilities at the date of the distribution. Randolph's basis in RD is $37,000. What is the amount and character of Randolph's gain or loss on the distribution?

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?

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

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: $\begin{array} { | l | c | c | } \hline & \text { Partnership's Basis in Asset } & \text { Asset's Fair Market Value } \\\hline \text { Cash } & \$ 81,000 & \$ 81,000 \\\hline \text { Inventory } & 36,000 & 24,000 \\\hline \text { Land } & 120,000 & 135,000 \\\hline\end{array}$ What is the amount and character of Doris' gain or loss on the distribution? What is her basis in the distributed assets?

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 is false concerning special basis adjustments?

Jessica is a 25% partner in the JRL Partnership. On January 1, JRL distributes $40,000 cash to Jessica. JRL has no hot assets or liabilities at the date of the distribution. Jessica's basis in JRL is $28,000. What is the amount and character of Jessica's gain or loss from the distribution?

Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 to Barry. As a result of the distribution, Barry reduces his basis in the partnership interest to $0, has a $60,000 basis in the cash received, and he recognizes a gain of $10,000 on the distribution.

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?

Joan is a 30% partner in the OJT Partnership when she sells her entire interest to Crissy for $100,000 cash. At the time of the sale, Joan's basis in OJT is $63,000 (which includes her $10,000 share of OJT liabilities). OJT does not have any hot assets. What is the amount and character of Joan's gain or loss on the sale?