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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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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?

A) KDP will step up the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
B) KDP will step up the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.
C) KDP will step down the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
D) KDP will step down the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.

E) A) and C)
F) A) and B)

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Question 22

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Esther and Elizabeth are equal partners in the EE Partnership.The partners formed the partnership seven years ago by contributing cash.Prior to any distributions,the partners each have a $40,000 basis in their partnership interests including their share of partnership liabilities.On December 31,EE partnership repays $50,000 of debt.What is the amount and character of Esther's recognized gain or loss? What is Esther's remaining basis in EE?

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Esther does not recognize any gain or lo...

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Question 23

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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?

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?

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 generally treated as a capital asset,the disposal of which results in capital gain or loss.

Which of the following statements is true regarding partnership operating distributions?

Daniela is a 25% partner in the JRD Partnership.On January 1,JRD makes a proportionate 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?

The PW partnership's balance sheet includes the following assets immediately before it liquidates: 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?

Martha is a 40% partner in the MMM Partnership with an outside basis of $50,000.MMM distributes $40,000 cash and accrual basis accounts receivable with a basis and fair market value of $20,000.Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

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

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

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

Which of the following statements is false concerning partnership liquidating distributions?

A disproportionate distribution of hot assets is treated as though the partnership distributes a proportionate share of hot assets to the partner and then the partner sells those hot assets back to the partnership at fair market value in exchange for a portion of the assets actually received in 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.

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 proportionate operating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000).What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

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?

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: What is the amount and character of Marty's recognized gain or loss?