Exam 10: Special Partnership Issues

If a partnership asset with a deferred precontribution gain is distributed within seven years of acquisition in a nonliquidating distribution to a partner who did not contribute the asset, the precontribution gain must be recognized by the contributing partner.

Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money, accounts receivable having a zero basis to the partnership, and land having a $28,000 basis to the partnership. What is Jerry's basis in his partnership interest after the distribution?

Joshua is a 40% partner in the XY Partnership when he sells his entire interest to Stanley for $60,000 cash. At the time of the sale, Joshua's basis is $36,000, which includes his $10,000 share of partnership liabilities. The partnership has no Sec. 751 assets. Calculate Joshua's gain or loss on the sale.

Sally is a calendar-year taxpayer who owns a 30% capital and profits interest in the SEM Partnership. Eric sells the remaining 70% capital and profits interest to Michelle on October 3. The partnership year-end is March 31 as permitted by the IRS for business purposes. Which of the following statements is correct?

The Principle Limited Partnership has more than 300 partners and is publicly traded. The Principle was grandfathered under the 1987 Tax Act and has consistently been taxed as a partnership. In the current year, The Principle Limited Partnership will continue to be very profitable and will continue to pay out about 30% of its income to its owners each year. The managing partners of The Principle want to consider the firm's options for taxation in the current and later years.

The limited liability company (LLC) has become a popular business form because of its limited liability protection for its owner. The S corporation also provides limited liability protection for its owner. What advantages does an LLC provide that are not available with an S corporation?

Identify which of the following statements is true.

If a distribution occurs within ________ years of the contribution date, in a nonliquidating distribution that does not qualify for Sec. 751 treatment, the distribution event may trigger a precontribution gain or loss.

Before receiving a liquidating distribution, Kathy's basis in her interest in the KLM Partnership is $30,000. The distribution consists of $5,000 in money, inventory having a $1,000 basis to the partnership and a $2,000 FMV, and two parcels of undeveloped land (not held as inventory) having basis of $3,000 and $9,000 to the partnership with FMVs of $5,000 and $12,000, respectively. What is Kathy's basis in each parcel of land?

David sells his one-third partnership interest to Diana for $60,000 when his basis in the partnership interest is $48,000. On the date of sale, the partnership has no liabilities and the following assets: Assets Basis FMV Cash $40,000 $40,000 Inventory 18,000 27,000 Building 75,000 102,000 Land 11,000 11,000 The building is depreciated on a straight-line basis. What tax issues should David and Diana consider with respect to the sale transaction?

Ten years ago, Latesha acquired a one-third interest in Dana Associates, a partnership, for $26,000 cash. This year, Latesha's entire interest in the partnership is liquidated when her basis is $24,000. Dana's assets consist of the following: cash, $20,000; inventory with a basis of $46,000 and an FMV of $40,000. Dana has no liabilities. Latesha receives the cash of $20,000 in liquidation of her entire interest. What is Latesha's recognized loss on the liquidation of her interest in Dana?

The XYZ Partnership owns the following assets on December 31: By how much must XYZ reduce its unrealized receivables to avoid meeting the substantially appreciated inventory test?

Ed receives a $20,000 cash distribution from the EV Partnership, which reduces his partnership interest from one-third to one-fourth. The EV Partnership is a general partnership that uses the cash method of accounting and has substantial liabilities. EV's inventory has appreciated substantially since it was purchased. What issues should Ed consider with regard to the distribution?

Bart has a partnership interest with a $32,000 basis. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $9,000, basis $10,000), inventory (FMV $8,000, basis $4,000), investment land (FMV $7,000, basis $4,000), and building (FMV $20,000, basis $8,000). No depreciation recapture applies with respect to the building. The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. Bart's basis in the building is

For Sec. 751 purposes, "substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis.

The Internal Revenue Code includes which of the following assets in the definition of Sec. 751 properties?

Identify which of the following statements is true.

The sale of a partnership interest always results in capital gain or loss rather than ordinary income.

The STU Partnership, an electing Large Partnership, has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000, Sec. 1231 gain $60,000, ordinary income $20,000, charitable contributions $15,000, and tax-exempt income $2,000. How much will be reported as long-term capital gains to its partners?

The definition of "unrealized receivable" does not include the