Question 1

Identify which of the following statements is true.

Accepted Answer

A)  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. 
B)  The partnership tax year closes when a partner transfers his interest by gift. 
C)  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. 
D)  All of the above are false. 
A)  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. 
B)  The partnership tax year closes when a partner transfers his interest by gift. 
C)  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. 
D)  All of the above are false.

Question 2

On December 31, Kate receives a $28,000 liquidating distribution from the KLM Partnership. On that date, Kate's basis in her limited partnership interest is $18,000 (which, of course, includes her share of partnership liabilities). The other partners assume her $6,000 share of liabilities. Just prior to the distribution, the partnership has the following balance sheet. Kate is leaving the partnership but the partnership is continuing.
 $$\begin{array} { | l | r | c | } 
\hline  { \text { Equities } } & \text { Basis } & \text { Fair Market Value } \
\hline \text { Notes payable } & \$ 30,000 & \$ 30,000 \
\text { Kate, capital } & 12,000 & 27,000 \
\text { Lynn, capital } & 24,000 & 54,000 \
\text { Mark, capital } & \underline { 24,000 } & \underline { 54,000 } \
\text { Total } & \underline { \$ 90,000 } & \$ 165,000 \
\hline
\end{array}$$ What is the amount and character of the gain that Kate must recognize on the liquidating distribution?

Accepted Answer

Divide the payments between Sec. 736(a)

Question 3

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?

Accepted Answer

Ed must determine:
• How much is his dis

Question 4

Kenya sells her 20% partnership interest having a $28,000 basis to Ebony for $40,000 cash. At the tim the sale, the partnership has no liabilities and its assets are as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Basis } & \text { FMV } \
\hline \text { Cash } & \$ 20,000 & \$ 20,000 \
\hline \text { Unrealized receivables } & 0 & 40,000 \
\hline \text { Inventory } & 10,000 & 40,000 \
\hline \text { Land (Sec. 1231) } & 110,000 & 100,000 \
\hline
\end{array}$$ Kenya and Ebony have no agreement concerning the allocation of the sales price. Ordinary income recognized by Kenya as a result of the sale is

Accepted Answer

A)  $12,000. 
B)  $16,000. 
C)  $6,000. 
D)  $14,000. 
A)  $12,000. 
B)  $16,000. 
C)  $6,000. 
D)  $14,000.

Question 5

Identify which of the following statements is true.

Accepted Answer

A)  The partnership's tax year closes with respect to a partner whose interest is transferred by gift. 
B)  An LLC has been taxed as a partnership for five years. Under the check- the- box rules, the LLC makes a timely election in 2009 to be taxed as a C corporation. The election of C corporation status is permitted and results in the LLC's assets being transferred from a partnership to a C corporation under the federal income tax rules. 
C)  Under the check- the- box rules, an LLC with more than one member is taxed as a corporation unless it elects to be taxed as a partnership. 
D)  All of the above are false. 
A)  The partnership's tax year closes with respect to a partner whose interest is transferred by gift. 
B)  An LLC has been taxed as a partnership for five years. Under the check- the- box rules, the LLC makes a timely election in 2009 to be taxed as a C corporation. The election of C corporation status is permitted and results in the LLC's assets being transferred from a partnership to a C corporation under the federal income tax rules. 
C)  Under the check- the- box rules, an LLC with more than one member is taxed as a corporation unless it elects to be taxed as a partnership. 
D)  All of the above are false.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Identify which of the following statements is false.

Accepted Answer

A)  A partner's individual income tax return, under some circumstances, may include the results of partnership operations for a period exceeding 12- months. 
B)  When several different transfers are made during a 12- month period, the partnership termination occurs on the date of the transfer that first crosses the 50% threshold. 
C)  When using the 50% rule to terminate a partnership, if an interest is sold more than once during the 12- month period, each sale is counted separately. 
D)  A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive- month period will terminate the partnership and end all of the partnership's elections. 
A)  A partner's individual income tax return, under some circumstances, may include the results of partnership operations for a period exceeding 12- months. 
B)  When several different transfers are made during a 12- month period, the partnership termination occurs on the date of the transfer that first crosses the 50% threshold. 
C)  When using the 50% rule to terminate a partnership, if an interest is sold more than once during the 12- month period, each sale is counted separately. 
D)  A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive- month period will terminate the partnership and end all of the partnership's elections.

Question 8

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

Question 9

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV. The partnership has claimed $16,000 in depreciation on the machine since its purchase. If the machine is sold for its FMV, would TK Partnership have an unrealized receivable item?

Accepted Answer

Yes. All of the $12,000 gain would be an

Question 10

Identify which of the following statements is true.

Accepted Answer

A)  An exchange of partnership interests in different partnerships qualifies under the like- kind exchange rules. 
B)  John Albin is a retired partner of Brill & Crum, a personal service partnership. Albin has not rendered any services to Brill & Crum since his retirement six years ago. Under the provisions of Albin's retirement agreement, Brill & Crum is obligated to pay Albin 10% of the partnership's net income each year through the end of the current year. In compliance with the agreement, Brill & Crum pay Albin $25,000 in the current year. Albin should treat this $25,000 as a long- term capital gain. 
C)  The payment for partnership property to a retiring partner is not deductible by the partnership and often not income to the retiring partner. 
D)  All of the above are false. 
A)  An exchange of partnership interests in different partnerships qualifies under the like- kind exchange rules. 
B)  John Albin is a retired partner of Brill & Crum, a personal service partnership. Albin has not rendered any services to Brill & Crum since his retirement six years ago. Under the provisions of Albin's retirement agreement, Brill & Crum is obligated to pay Albin 10% of the partnership's net income each year through the end of the current year. In compliance with the agreement, Brill & Crum pay Albin $25,000 in the current year. Albin should treat this $25,000 as a long- term capital gain. 
C)  The payment for partnership property to a retiring partner is not deductible by the partnership and often not income to the retiring partner. 
D)  All of the above are false.

Question 11

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

Question 12

The definition of "inventory" for purposes of Sec. 751 includes

Accepted Answer

A)  marketable securities not held by dealers. 
B)  land held for investment. 
C)  depreciation recapture potential on Sec. 1231 assets. 
D)  cash. 
A)  marketable securities not held by dealers. 
B)  land held for investment. 
C)  depreciation recapture potential on Sec. 1231 assets. 
D)  cash.

Question 13

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

Question 14

The ABC Partnership owns the following assets on December 31.
$\begin{array}{|l|l|l|} 
\hline& \text { Basis } & \text { FMV } \
\hline \text { Cash } & \$ 20,000 & \$ 20,000 \
\hline \text { Unrealized receivables } & 0 & 40,000 \
\hline \text { Inventory } & \$ 20,000 & 30,000 \
\hline \text { Land (Sec. 1231 asset) } & 50,000 & 90,000\\hline
\end{array}$ The indication that ABC owns substantially appreciated inventory is

Accepted Answer

A)  the FMV of all assets except land is $90,000 while their bases is $40,000. 
B)  the FMV of the inventory is $30,000 while its adjusted basis is $20,000. 
C)  the total FMV of all assets except cash is greater than their total basis. 
D)  the FMV of the inventory and unrealized receivables is $70,000 while their adjusted bases is $20,000. 
A)  the FMV of all assets except land is $90,000 while their bases is $40,000. 
B)  the FMV of the inventory is $30,000 while its adjusted basis is $20,000. 
C)  the total FMV of all assets except cash is greater than their total basis. 
D)  the FMV of the inventory and unrealized receivables is $70,000 while their adjusted bases is $20,000.

Question 15

If a partner dies, his or her tax year closes

Accepted Answer

A)  on the day before death. 
B)  on the day after death. 
C)  on some other date. 
D)  on the date of death. 
A)  on the day before death. 
B)  on the day after death. 
C)  on some other date. 
D)  on the date of death.

Question 16

Tony sells his one- fourth interest in the WindyCity Partnership to Bill for $100,000 cash when the partnership's assets are as follows: $\begin{array}{|l|r|r|}\hline \text { Assets } & \text { Basis } & \text { Fair Market Value } \
\hline \text { Cash } & \$ 80,000 & \$ 80,000 \
\text { Unrealized receivables } & 0 & 72,000 \
\text { Inventory } & 80,000 & 184,000 \
\text { Land } & \underline{80,000} & 64,000 \
\text { Total } & \$ 240,000 & \$ 400,000 \
\hline
\end{array}$ 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 amount of gain realized by Tony on the sale of his partnership interest?

Accepted Answer

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

Question 17

What is the definition of "substantially appreciated inventory"?

Accepted Answer

A)  inventory and unrealized receivables with a FMV greater than their basis 
B)  inventory and unrealized receivables with a FMV greater than 120% of their basis 
C)  inventory with a FMV greater than its basis 
D)  inventory with a FMV greater than 120% of its basis 
A)  inventory and unrealized receivables with a FMV greater than their basis 
B)  inventory and unrealized receivables with a FMV greater than 120% of their basis 
C)  inventory with a FMV greater than its basis 
D)  inventory with a FMV greater than 120% of its basis

Question 18

For purposes of Sec. 751, inventory includes all of the following except

Accepted Answer

A)  accounts receivable. 
B)  items held for sale in the ordinary course of business. 
C)  capital assets or 1231 property. 
D)  All of the above are inventory per Sec. 751. 
A)  accounts receivable. 
B)  items held for sale in the ordinary course of business. 
C)  capital assets or 1231 property. 
D)  All of the above are inventory per Sec. 751.

Question 19

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

Question 20

Under Sec. 751, unrealized receivables include potential Section 1245 or 1250 recapture on the partnership's depreciable property.

Accepted Answer

A) True 
 B)False

Identify which of the following statements is true.

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.

Identify which of the following statements is false.

When must a partnership make mandatory basis adjustments?

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV. The partnership has claimed $16,000 in depreciation on the machine since its purchase. If the machine is sold for its FMV, would TK Partnership have an unrealized receivable item?

Identify which of the following statements is true.

The definition of "inventory" for purposes of Sec. 751 includes

The ABC Partnership owns the following assets on December 31. Basis FMV Cash \ 20,000 \ 20,000 Unrealized receivables 0 40,000 Inventory \ 20,000 30,000 Land (Sec. 1231 asset) 50,000 90,000 The indication that ABC owns substantially appreciated inventory is

If a partner dies, his or her tax year closes

What is the definition of "substantially appreciated inventory"?

For purposes of Sec. 751, inventory includes all of the following except

Under Sec. 751, unrealized receivables include potential Section 1245 or 1250 recapture on the partnership's depreciable property.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

Filters

Exam 10: Special Partnership Issues

Identify which of the following statements is true.

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.

Identify which of the following statements is false.

When must a partnership make mandatory basis adjustments?

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV. The partnership has claimed $16,000 in depreciation on the machine since its purchase. If the machine is sold for its FMV, would TK Partnership have an unrealized receivable item?

Identify which of the following statements is true.

The definition of "inventory" for purposes of Sec. 751 includes

The ABC Partnership owns the following assets on December 31. Basis FMV Cash \ 20,000 \ 20,000 Unrealized receivables 0 40,000 Inventory \ 20,000 30,000 Land (Sec. 1231 asset) 50,000 90,000 The indication that ABC owns substantially appreciated inventory is

If a partner dies, his or her tax year closes

What is the definition of "substantially appreciated inventory"?

For purposes of Sec. 751, inventory includes all of the following except

Under Sec. 751, unrealized receivables include potential Section 1245 or 1250 recapture on the partnership's depreciable property.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

Filters