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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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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: $\begin{array} { | l | r | } \hline \text { Nadine, capital } & \$ 60,000 \\\hline \text { Wendell, capital } & 60,000 \\\hline \text { Louis, capital } & 60,000 \\\hline \text { Total } & \$ 180,000 \\\hline\end{array}$ 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?

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Katrina does not recognize any gain or l...

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Question 42

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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: $\begin{array} { | l | r | r | } \hline & \text { Partnership's Basis in } & \text { Assets Fair maket } \\&\text { Asset } & \text { Value } \\\hline \text { Cash } & \$ 81,000 & \$ 81,000 \\\hline \text { Inventory } & 36,000 & 24,000 \\\hline \text { Land } & 120,000 & 135,000 \\\hline\end{array}$ $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 180,000 & \$ 180,000 \\\hline \text { Accounts receivable } & - 0 - & 240,000 \\\hline \text { Stock investment } & 75,000 & 120,000 \\\hline \text { Land } & \underline { 300,000 } & \underline { 360,000 } \\\hline \text { Total } & \$ 555,000 & \$ 900,000 \\\hline\end{array}$ What is the amount and character of Marty's recognized gain or loss?

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$28,000 capital loss and $36,000 ordinar...

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Question 43

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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?

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

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

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

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.

Which of the following statements regarding liquidating distributions 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.

Jackson is a 30% partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash. At the time of the sale, Jackson's basis in JJM is $64,000. JJM does not have any debt or hot assets. What is Jackson's gain or loss on the sale of his interest?

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?

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.

In the sale of a partnership interest, a selling partner will recognize ordinary income (rather than capital gain) when the partnership assets include cash and land held for 5 years as an investment.

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array} { | l | r | r | } \hline \text { Assets: } & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 48,000 & \$ 48,000 \\\text { Land held For investment } & 96,000 & 132,000 \\\hline\end{array}$ 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?

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 a proportionate 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?

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?

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.

Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash, inventory with a $10,000 fair value (inside basis $4,000) , land A with a fair value of $8,000 (inside basis of $12,000) and land B with a fair value of $6,000 (inside basis of $4,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $23,000. What is Tyson's basis in the distributed inventory, land A and land B?

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: $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 80,000 & \$ 80,000 \\\hline \text { Inventory } & 60,000 & 180,000 \\\hline \text { Land held for investment } & \underline { 160,000 } & \underline { 100,000 } \\\hline \text { Total } & \$ 300,000 & \$ 360,000 \\\hline\end{array}$ $\begin{array} { | l | r | } \hline \text { Pre-distribution basis in JM } & \$ 54,000 \\\hline \text { Plus: deemed contribution } & 15,000 \\\hline \text { Less: basis allocated to land } & ( 64,0000) \\\hline \text { Remaining basis in JM } & \$ 5,000 \\\hline\end{array}$ 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?