Question 1

A partner's holding period for property distributed as a current distribution begins on the date of distribution.

Accepted Answer

A) True 
 B)False  False

Question 2

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

Accepted Answer

A) $0 
B) $300,000 increase in the basis of partnership assets 
C) $100,000 increase in Patrick's basis in the partnership assets 
D) $100,000 increase in Patrick's share of the basis in the partnership assets 
A) $0 
B) $300,000 increase in the basis of partnership assets 
C) $100,000 increase in Patrick's basis in the partnership assets 
D) $100,000 increase in Patrick's share of the basis in the partnership assets D

Question 3

On December 31,Kate sells her 20% interest (with a basis of $18,000 which,of course,includes a share of partnership liabilities)in the KLM Partnership to Karl for $27,000 cash plus assumption of her $6,000 share of liabilities.On that date,the partnership has the following balance sheet:
 $$\begin{array} { | c | c | c | } 
\hline { \text { Assets } } & \text { Basis } & \text { Fair Market Value } \
\hline \text { Cash } & \$ 30,000 & \$ 30,000 \
\text { Accounts receivable } & 0 & 20,000 \
\text { Inventory } & 15,000 & 25,000 \
\text { Land } & \underline { 45,000 } & \underline { 90,000 } \
\text { Total } & \$ 90,000 & \$ 165,000 \
\hline
\end{array}$$ $$\begin{array} { | c | c | c | } 
\hline  { \text { Equities } } & \text { Basis } & \text { Fair Market Value } \
\hline \text { Notes payable } & \$ 30,000 & \$ 30,000 \
\text { Kate, capital } & 12,000 & 27,000 \
\text { Lynn, capital } & 24,000 & 54,000 \
\text { Mark, capital } & \underline { 24,000 } & \$ 54,000 \
\text { Total } & \$ 90,000 & \$ 165,000 \
\hline
\end{array}$$ What are the amount and character of the gain that Kate must recognize on the sale?

Accepted Answer

$$\begin{array} { | l | c | c | c | } 
\hline & \text { Total } & \text { Sec. 751 Assets } & \text { Other } \
\hline \text { Amount realized } & \$ 33,000 & \$ 9,000 & \$ 24,000 \
\text { Minus: adjusted } & (18,000 & (3,000) & (15,000) \
\text { basis } & \$ 15,000 & \$ 6,000 & \$ 9,000\
\text { Recognized gain }&&\text { Ordinary }&\text { Capital }\
\text { Character of gain }\
\hline
\end{array}$$

Question 4

A partnership terminates for tax purposes

Accepted Answer

A) only when it terminates under local partnership law. 
B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months. 
C) when the sale of partnership assets is made only to an outsider(s)and not to an existing partner(s). 
D) when a partnership tax return (Form 1065)ceases to be filed by the partnership. 
A) only when it terminates under local partnership law. 
B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months. 
C) when the sale of partnership assets is made only to an outsider(s)and not to an existing partner(s). 
D) when a partnership tax return (Form 1065)ceases to be filed by the partnership.

Question 5

Identify which of the following statements is true.

Accepted Answer

A) The partnership tax year closes when a partner transfers his interest by gift. 
B) If a partner dies in a two-member partnership,the partnership terminates on the date of death,even though the successor-in-interest continues to share in the profits and losses of the partnership business. 
C) When the interest of a partner who owns 60% of a partnership is completely liquidated by a partnership distribution,the partnership is considered terminated,even though three other partners remain. 
D) All of the above are false. 
A) The partnership tax year closes when a partner transfers his interest by gift. 
B) If a partner dies in a two-member partnership,the partnership terminates on the date of death,even though the successor-in-interest continues to share in the profits and losses of the partnership business. 
C) When the interest of a partner who owns 60% of a partnership is completely liquidated by a partnership distribution,the partnership is considered terminated,even though three other partners remain. 
D) All of the above are false.

Question 6

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to

Accepted Answer

A) the partner's predistribution basis in his partnership interest. 
B) the FMV of the property distributed. 
C) the partnership's bases in the distributed property. 
D) the predistribution FMV of the partner's partnership interest. 
A) the partner's predistribution basis in his partnership interest. 
B) the FMV of the property distributed. 
C) the partnership's bases in the distributed property. 
D) the predistribution FMV of the partner's partnership interest.

Question 7

Tony sells his one-fourth interest in the WindyCity Partnership to Bill for $100,000 cash when the partnership's assets are as follows:
 $$\begin{array} { | c | c | c | } 
\hline { \text { Assets } } & \text { Basis } & \text { Fair Market Value } \
\hline \text { Cash } & \$ 80,000 & \$ 80,000 \
\text { Unrealized receivables } & 0 & 72,000 \
\text { Inventory } & 80,000 & 184,000 \
\text { Land } & \underline { 80,000 } & \underline { 64,000 } \
\text { Total } & \underline { \$ 240,000 } & \$ 400,000 \
\hline
\end{array}$$ The partnership has no liabilities on the sale date.Tony's basis in his partnership interest on the date of the sale is $60,000.What is the allocation of Tony's gain to the assets received?

Accepted Answer

The answer of Tony sells his one-fourth interest in the...

Question 8

The AB,BC,and CD Partnerships merge into the ABCD Partnership.AB (owned by Austin and Ben)contributes assets worth $100,000.BC (owned by Ben and Charlie)contributes assets worth $200,000.CD (owned by Charlie and Dennis)contributes assets worth $300,000.The capital and profits interest in ABCD is owned by: Austin,10%; Ben,30%; Charlie,25%; and Dennis,35%.ABCD Partnership is a continuation of

Accepted Answer

A) AB. 
B) BC. 
C) CD. 
D) none of the partnerships. 
A) AB. 
B) BC. 
C) CD. 
D) none of the partnerships.

Question 9

Becky has a $24,000 basis in her partnership interest.She receives a current distribution of $4,000 cash,unrealized receivables with a basis of $12,000 and an FMV of $16,000,and land held as an investment with a basis of $3,000 and an FMV of $8,000.The partners' relative interests in the Sec.751 assets do not change as a result of the current distribution.The basis of her partnership interest following the distribution is

Accepted Answer

A) $5,000. 
B) $1,000. 
C) $0. 
D) ($4,000). 
A) $5,000. 
B) $1,000. 
C) $0. 
D) ($4,000).

Question 10

The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000.The partnership has taken an $8,000 depreciation on the machine.The unrealized receivable related to the machine is

Accepted Answer

A) $0. 
B) $5,000. 
C) $8,000. 
D) $20,000. 
A) $0. 
B) $5,000. 
C) $8,000. 
D) $20,000.

Question 11

Patrick purchased a one-third interest in the PPP partnership for $600,000.At the time of the purchase,the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000.This year,PPP sells the land for $1,800,000.What is Patrick's recognized share of the gain on the sale of the land?

Accepted Answer

A) $0 
B) $100,000 
C) $300,000 
D) none of the above 
A) $0 
B) $100,000 
C) $300,000 
D) none of the above

Question 12

A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution.

Accepted Answer

A) True 
 B)False

Question 13

Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money,plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375,and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000.What is Tenika's basis for the plastic tubes and drip irrigation pipe?

Accepted Answer

A)  $$\begin{array} {| l| l | } 
\hline \text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 3,375 & \$ 5,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { |l| l |} 
\hline\text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 3,000 & \$ 6,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { |l |l | } 
\hline \text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 3,000 & \$ 5,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { |l |l | } 
\hline\text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 2,250 & \$ 3,750 \
\hline
\end{array}$$ 
A)  $$\begin{array} {| l| l | } 
\hline \text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 3,375 & \$ 5,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { |l| l |} 
\hline\text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 3,000 & \$ 6,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { |l |l | } 
\hline \text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 3,000 & \$ 5,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { |l |l | } 
\hline\text { Plastic Tubes } & \text { Drip Pipe } \
\hline \$ 2,250 & \$ 3,750 \
\hline
\end{array}$$

Question 14

Ted King's basis for his interest in the Troy Partnership is $24,000.In complete liquidation of his interest,King receives cash of $4,000 and real property (not a Sec.751 asset)having an FMV of $40,000.Troy's adjusted basis for this realty is $15,000.Section 736 does not apply.King's basis for this realty is

Accepted Answer

A) $15,000. 
B) $20,000. 
C) $36,000. 
D) $40,000. 
A) $15,000. 
B) $20,000. 
C) $36,000. 
D) $40,000.

Question 15

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?

Accepted Answer

A) $0 
B) $10,000 
C) $50,000 
D) $60,000 
A) $0 
B) $10,000 
C) $50,000 
D) $60,000

Question 16

Carlos has a basis in his partnership interest of $30,000.He receives a current distribution of $6,000 cash,unrealized receivables (FMV $11,000,basis $10,000),inventory (FMV $8,000,basis $4,000),land held as an investment (FMV $7,000,basis,$6,000),and building (FMV $21,000,basis $9,000).The partners' relative interests in the Sec.751 assets do not change as a result of the current distribution.Carlos's basis in the building is

Accepted Answer

A) $2,500. 
B) $6,000. 
C) $7,500. 
D) $9,000. 
A) $2,500. 
B) $6,000. 
C) $7,500. 
D) $9,000.

Question 17

When must a partnership make mandatory basis adjustments?

Accepted Answer

A) on any sale of a 20% or greater partnership interest 
B) on any sale of a partnership interest for $250,000 or more 
C) on any distribution of assets with a value of $250,000 or more 
D) on any sale of a partnership interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more 
A) on any sale of a 20% or greater partnership interest 
B) on any sale of a partnership interest for $250,000 or more 
C) on any distribution of assets with a value of $250,000 or more 
D) on any sale of a partnership interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

A partnership terminates for federal income tax purposes if

Accepted Answer

A) a general partner who owns a majority interest dies. 
B) state partnership law terminates the partnership. 
C) a partnership interest of more than 50% is gifted. 
D) within a 12-month period,there is a sale or exchange of at least 50% of the total interest in partnership capital and profits. 
A) a general partner who owns a majority interest dies. 
B) state partnership law terminates the partnership. 
C) a partnership interest of more than 50% is gifted. 
D) within a 12-month period,there is a sale or exchange of at least 50% of the total interest in partnership capital and profits.

Question 20

The XYZ Partnership owns the following assets on December 31: $$\begin{array} { | l | r | r | } 
\hline & { \text { Basis } } & { \text { FMV } } \
\hline \text { Cash } & \$ 20,000 & \$ 20,000 \
\hline \text { Unrealized receivables } & 0 & 15,000 \
\hline \text { Inventory } & \$ 30,000 & 35,000 \
\hline \text { Land (Sec. 1231 asset) } & 40,000 & 70,000 \
\hline
\end{array}$$ By how much must XYZ reduce its unrealized receivables to avoid meeting the substantially appreciated inventory test?

Accepted Answer

A) $10,000 
B) $14,000 
C) $15,000 
D) No amount of reduction of unrealized receivables will affect meeting the substantially appreciated inventory test. 
A) $10,000 
B) $14,000 
C) $15,000 
D) No amount of reduction of unrealized receivables will affect meeting the substantially appreciated inventory test.

Exam 10: Special Partnership Issues

A partner's holding period for property distributed as a current distribution begins on the date of distribution.

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

A partnership terminates for tax purposes

Identify which of the following statements is true.

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to

The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000.The partnership has taken an $8,000 depreciation on the machine.The unrealized receivable related to the machine is

A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution.

When must a partnership make mandatory basis adjustments?

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.

A partnership terminates for federal income tax purposes if

Tax Research

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The Corporate Income Tax

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U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

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Property Transactions: Capital Gains and Losses

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Property Transactions: Nontaxable Exchanges

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Special Tax Computation Methods,tax Credits,and Payment of Tax

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