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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 51

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The partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

A) True
B) False

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Question 52

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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.

A) True
B) False

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Question 53

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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: $\begin{array}{lrr}\text { Assets: } & \underline{\text { Basis }} & \underline{\text { FMV }} \\\text { Cash } & \mathbf{\$ 2 2 , 0 0 0} & \$ \mathbf{2 2 , 0 0 0} \\\text { Stock (investment) } & 11,000 & 22,000 \\\text { Land } & \underline{66,000} & \underline{22,000} \\\text { Totals } & \underline{\underline{\$ 99,000}} & \underline{\underline{\$ 66,000}}\end{array}$ $\begin{array}{l}\text { Liabilities and capital: }\\\begin{array}{cr}\text { Capital - Tatia } &&&& 33,000 \\\text { - Rihanna } &&&& 33,000 \\\text { - Quinn } &&&& \underline{33,000} \\\text { Totals } &&&& \$ 99000\end{array}\end{array}$ 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?

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 $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 accounts receivable?

Nadine Fimple is a one-half partner in the NL Partnership with equal inside and outside bases. On January 1, NL distributes accounts receivable with a fair value of $100,000 to Nadine as an operating distribution. NL's balance sheet as of January 1 is as follows: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 1 0 0 , 0 0 0 } & \mathbf { \$ 1 0 0 , 0 0 0 } \\\text { Accounts receivable } & \underline { { - 0 } - } & \underline { \mathbf { 1 0 0 , 0 0 0 } } \\\text { Total } & \underline { \mathbf { \$ 1 0 0 , 0 0 0 } } & \underline { \mathbf { \$ 20 0 , 0 0 0 } } \\& & \\\text { Nadine, capital } & \mathbf { \$ 5 0 , 0 0 0 } & \\\text { Louis, capital } & \underline { \mathbf { 5 0 , 0 0 0 } } & \\\text { Total } & \underline { \mathbf { \$ 10 0 , 0 0 0 } } &\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

A partner that receives cash in an operating distribution recognizes gain if the cash distributed exceeds the partner's outside basis in the partnership immediately before the distribution.

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

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?

A partner recognizes a loss when he receives cash and other property with inside bases greater than his outside basis in a liquidating distribution.

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{lrr}&\underline{Basis}&\underline{FMV}\\\text { Cash } & \$ \mathbf{\$ 1 0 , 0 0 0} & \$ \mathbf{\$ 1 0 , 0 0 0} \\\text { Unrealized receivables } & \underline{-0-} & \underline{\mathbf{\$ 2 0 , 0 0 0}} \\\text { Total } &\underline{\underline{{\mathbf{\$ 1 0 , 0 0 0}}}}& \underline{\underline{\$20,000}}\end{array}$ 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?

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?

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 Riley's basis in the distributed property?

The VRX Partnership (a calendar year-end entity) has the following assets and no liabilities: $\begin{array}{l}\begin{array}{lrr}&\text { Basis} &\text { FMV} \\\hline\text { Cash } & \$ 27,000 & \$ 27,000 \\\text { Accounts receivable } & -0- & 18,000 \\\text { Inventory } & 103,500 & 121,500 \\\text { Equipment } & \mathbf{2 7 0 , 0 0 0} & \mathbf{3 3 7 , 5 0 0} \\\text { Stock investment } & \underline{67,500} & \underline{\mathbf{6 2 , 5 0 0}} \\\text { Totals } & \underline{\underline{\$ 468,000}} & \underline{\$ 566,500}\end{array}\end{array}$ The equipment was purchased for $360,000 and VRX has taken $90,000 of depreciation. The stock was purchased 7 years ago. What are VRX's hot assets for purposes of a sale of partnership interest?

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

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

Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment 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 $48,000. What is Randolph's basis in the distributed investment and land?

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

Nadine Fimple is a one-third partner in the NWL Partnership with equal inside and outside bases. On January 1, NWL distributes $100,000 to Nadine in complete liquidation of her FPL interest. NWL's balance sheet as of January 1 is as follows: $\begin{array}{l}\begin{array}{c}\\Cash\\Inventory\\Total\\\end{array}\begin{array}{c}\text { Basis } \\\$ \mathbf{12 0 , 0 0 0} \\\underline{\mathbf{6 0 , 0 0 0}} \\\$ \mathbf{18 0 , 0 0 0} \\\hline\end{array}\begin{array}{c}{\text { FMV }}\\{\$ 120,000} \\\underline{\mathbf{180, 0 0 0}} \\\hline \mathbf{\$300 , 0 0 0} \\\end{array}\end{array}$ Brooke, capital $\quad\quad\$60,000$ Penelope, capital $\quad\quad60,000$ Amanda, capital $\quad\quad\underline{60,000}$ Total $\quad\quad\quad\quad\quad\quad\$180,000$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

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