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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 1

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Brian is a 25% partner in the BC Partnership. On January 1, BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000) to Brian. BC has no liabilities at the date of the distribution. Brian's basis in BC is $16,000. What is the amount and character of Brian's gain or loss on the distribution?

A) $0
B) $4,000 capital gain
C) $12,000 capital gain
D) $20,000 capital gain

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

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Question 2

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A partner's debt relief from the sale of a partnership interest will decrease his outside basis.

A) True
B) False

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Question 3

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Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership 5 years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $44,000. On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

Which of the following is false concerning special basis adjustments?

Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prior to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: $\begin{array}{l}\begin{array} { l r r } \text { Assets: } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 4 8 , 0 0 0 } & \$ \mathbf { 4 8 , 0 0 0 } \\\text { Land held for investment } & \mathbf { 9 6 , 0 0 0 } & \mathbf { 1 3 2 , 0 0 0 }\end{array}\\\\\text { Liabilities and Capital: }\\\begin{array} { r r } \text { Capital } \text { - Paul } &&&&&& \mathbf { 4 8 , 0 0 0 } \\\text { - Kristi } &&&&&& \mathbf { 4 8 , 0 0 0 } \\\text { - David } &&&&&& \mathbf { 4 8 , 0 0 0 }\end{array}\end{array}$ If KDP has a §754 election in place, what is Kathy's special basis adjustment?

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: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 1 8 0 , 0 0 0 } & \mathbf { \$ 1 8 0 , 0 0 0 } \\\text { Accounts receivable } & - 0 - & \mathbf { 2 4 0 , 0 0 0 } \\\text { Stock investment } & \mathbf { 7 5 , 0 0 0 } & \mathbf { 1 2 0 , 0 0 0 } \\\text { Land } & \underline { \mathbf { 3 0 0 , 0 0 0 } } & \underline { \mathbf { 3 6 0 , 0 0 0 } } \\\text { Totals } & \underline { \mathbf { 5 5 5 , 0 0 0 } } & \underline { \$ 900,000 }\end{array}$ 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?

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?

The SSC Partnership balance sheet includes the following assets on December 31 of the current year: $\begin{array} { | l | r | r | } \hline & \text { Basis } & \underline { \text { FMV } } \\\hline \text { Cash } & \$ 180,000 & \$ 180,000 \\\hline \text { Accounts receivable } & - 0 - & 60,000 \\\hline \text { Land } & 90,000 & 120,000 \\\hline \text { Total } & \underline { \$ 270,000 } & \underline { \$ 360,000 } \\\hline\end{array}$ 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 $120,000 cash, how much capital gain and ordinary income must Susan recognize from the sale?

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

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

A partner that receives cash in an operating distribution recognizes loss if the cash distributed is less than the partner's outside basis in the partnership immediately before the distribution.

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) ?

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.

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?

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

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.

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

Marty is a 40% owner of MB Partnership. Marty has decided to sell his interest in the business to Emilio for $100,000 cash plus the assumption of his share of MB's liabilities. Assume Marty's inside and outside basis in MB are equal. MB shows the following balance sheet as of the sale date: $\begin{array}{c}\begin{array}{lll}\text{Assets:}\\\quad\text{Cash}\\\quad\text{Receivables}\\\quad\text{Inventory}\\\quad\text{Land held for investment}\\\quad\text{Totals}\\\\\text{Liabilities and capital:}\\\quad\text{Liabilities}\\\quad\text{Capital - Marty}\\\quad\quad\quad\text{- Barry}\\\quad\quad\text{Totals}\\\end{array}\begin{array}{lll}\underline{Basis}\\\$ 160,000 \\ \mathbf{5 0 , 0 0 0} \\ \mathbf{8 0 , 0 0 0} \\ \mathbf{6 0 , 0 0 0} \\ \hline \mathbf{\$ 3 5 0 , 0 0 0} \\ \hline\\\\\$ 120,000 \\92,000 \\\underline{138,000} \\\$ \mathbf{3 5 0 , 0 0 0} \\\hline\end{array}\begin{array}{r}\underline{FMV}\\\mathbf{\$ 1 6 0 , 0 0 0} \\\mathbf{5 0 , 0 0 0} \\\mathbf{1 7 0 , 0 0 0} \\\mathbf{4 0 , 0 0 0} \\\hline\mathbf{\$ 4 2 0 , 0 0 0} \\\hline\\\\\\\\\\\\\end{array}\end{array}$ What is the amount and character of Marty's recognized gain or loss?

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is $21,000. What is the amount and character of Daniela's gain or loss from the distribution?