Exam 10: Special Partnership Issues

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.

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?

Susan contributed land with a basis of $6,000 and an FMV of $10,000 to the SH Partnership two years ago to acquire her partnership interest. This year, the land is distributed to Harry when its FMV is $11,000. No other distributions have been made since Susan became a partner. When the land is distributed, the partnership's basis in the land immediately before distribution is increased by

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

What are some advantages and disadvantages of making a Section 754 election?

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

On November 30, Teri received a current distribution of cash of $4,000, marketable securities with a basis of $24,000 and an FMV of $30,000, and inventory with a basis of $2,000 and an FMV of $6,000. Prior to the distribution, Teri's basis in her interest in the partnership was $30,000. (There is no Sec. 751 exchange as a result of the distribution.) How much gain (if any) must Teri recognize as a result of the distribution?

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 Tandy Partnership owns the following assets on December 31: Assets Basis Fair Market Value Cash \ 20,000 \ 20,000 Unrealized receivables 0 30,000 Inventory 20,000 25,000 Land, Sec. 1231 property 35,000 Total \ 145,000 Is the partnership's inventory considered to be substantially appreciated for purposes of Sec. 751? Show your work.

Last year, Cara contributed investment land with an FMV of $24,000 and basis of $18,000 to the CDE Partnership. CDE made no distributions during last year, and Cara's basis in her partnership interest on December 31 of last year was $28,000. On January 1 of this year, the partnership distributed cash of $30,000 to Cara and distributed the land contributed by Cara to another partner, David. On the distribution date, the land had a $27,000 FMV. Assume the CDE Partnership reported no profit or loss this year. How much gain (if any) must Cara recognize as a result of the distributions? What is her basis in the partnership after the distributions?

Identify which of the following statements is true.

All states have adopted laws providing for limited liability companies. Describe a limited liability company (LLC).

Quinn and Pamela are equal partners in the QP Partnership. On December 30 of the current year, the QP Partnership agrees to liquidate Quinn's partnership interest for a cash payment on December 30 of each of the next five years. What tax issues should Quinn and Pamela consider with respect to the liquidation of Quinn's partnership interest?

If a partnership chooses to form an LLC, under the check- the- box rules, and assuming no elections are made, the entity will be taxed as

A partnership cannot recognize a gain or loss on a current distribution.

The CHS Partnership's balance sheet presented below is prepared on a cash basis at September 30 of the current year. Equities Basis Fair Market Value Notes payable \ 30,000 \ 30,000 Cindy, Capital 15,000 40,000 Helen, Capital 15,000 40,000 Gally, Capital Total Cindy withdraws from the partnership under an agreement whereby she takes one- third of each of the three assets and assumes $10,000 of the notes payable. Her basis for the partnership interest before any distribution is $25,000. What gain/loss should she report for tax purposes?

A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane's capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits. Diane's basis in the partnership interest prior to Gary's admission is $5,000. Due to the admission of Gary, partner Diane has

Which of the following statements is correct?

Under the check- the- box rules, an LLC with more than one member is taxed as a partnership unless it elects to be taxed as a corporation.

Helmut contributed land with a basis of $5,000 and an FMV of $10,000 to the HG Partnership five years ago to acquire a 50% partnership interest. This year the land is distributed to another partner, Gail, when its FMV is $11,000. No other distributions have been made since Helmut became a partner. When the land is distributed to Gail, Helmut recognizes a gain of