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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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

A) Inventory.
B) Depreciation recapture.
C) Cash.
D) Accounts receivable for a cash method taxpayer.

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

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Question 42

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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 pro-rata operating distribution to Heidi of $60,000 cash. What is the amount and character of Heidi's recognized gain or loss? What is Heidi's remaining basis in HT?

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$10,000 ca...

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Question 43

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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: $\begin{array}{lrr} & \underline{\text { Basis }} & \underline{\text { FMV }} \\\text { Cash } & \mathbf{\$ 1 8 0 , 0 0 0} & \mathbf{\$ 1 8 0 , 0 0 0} \\\text { Accounts receivable } & -0- & \mathbf{2 4 0 , 0 0 0} \\\text { Stock investment } & \mathbf{7 5 , 0 0 0} & \mathbf{1 2 0 , 0 0 0} \\\text { Land } & \underline{\mathbf{3 0 0 , 0 0 0}} & \underline{\mathbf{3 6 0 , 0 0 0}} \\\text { Totals } & \underline{\mathbf{5 5 5 , 0 0 0}} & \underline{\mathbf{\$ 9 0 0 , 0 0 0}}\end{array}$ 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 is true regarding partnership operating distributions?

A partner recognizes gain when he receives cash in excess of his outside basis in a liquidating distribution.

Shauna is a 50% 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: $\begin{array}{lrr}& \underline{\text { Basis }} & \underline{\text { FMV }} \\\text { Cash } & \$ 80,000 & \$ 80,000 \\\text { Inventory } & \mathbf{6 0 , 0 0 0} & 180,000 \\\text { Land held for investment } & \underline{160,000} & \underline{100,000}\\\text { Totals }&\$300,000&\$360,000\end{array}$ What is the amount and character of Shauna's gain or loss on the sale?

Kathy is a 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $160,000. KDP currently has a § 754 election in effect and has no hot assets or liabilities. Which of the following statements is true?

Tyson, a one-quarter partner in the TF Partnership, receives a proportionate distribution of $70,000 to liquidate his partnership interest on January 1. Tyson's outside basis is $75,000 including his $10,000 share of TF's liabilities. What is the amount and character of Tyson's recognized gain or loss?

Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and land with a fair value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $24,000. What is Tyson's basis in the distributed inventory and land?

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?

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?

A partner will recognize a loss from a liquidating distribution when the distribution includes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets.

Locke is a 50% partner in the LS Partnership. Locke has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution. On December 31, Locke receives an operating distribution of $30,000 cash. LS has no debt or hot assets. What is the amount and character of Locke's recognized gain or loss? What is Locke's ending basis in his partnership interest?

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?

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?

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

In an operating distribution, when a partnership distributes property other than money with a basis that exceeds the partner's outside basis, the partner assigns a carryover basis to the distributed assets and recognizes a gain.

Randolph is a 30% 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 RD is $37,000. What is Randolph's basis in the distributed inventory and land?

Under the entity concept, a partnership interest is an intangible asset similar to an ownership interest in a corporation. As such, a partnership interest is treated as a capital asset, the disposal of which results in capital 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: $\begin{array}{lrr}\text { Assets: } & \underline{\text { Basis }} & \underline{\text { FMV }} \\\text { Cash } & \$ 110,000 & \$ 110,000 \\\text { Stock (investment) } & \mathbf{2 4 0 , 0 0 0} & 110,000 \\\text { Land } & \underline{55,000} & \underline{110,000} \\\text { Totals } & \underline{\$ 405,000} & \underline{\$ 330,000}\end{array}$ $\begin{array}{l}\text { Liabilities and capital: }\\\begin{array}{cr}\text { Capital - Daniel } & \$ 135,000 \\\text { - Alexandra } & 135,000 \\\text { - Travis } & \underline{135,000} \\\text { Totals } & \$ \mathbf{4 0 5 , 0 0 0}\end{array}\end{array}$ 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?