Question 1

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 2

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

Accepted Answer

Advantages: Without a 754 election, if a

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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.

Accepted Answer

The answer of Joshua is a 40% partner in the...

Question 5

Identify which of the following statements is true.

Accepted Answer

A)  For Sec. 751 purposes, "substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis. 
B)  Inventory for Sec. 751 purposes includes all property except cash, capital assets, and Sec. 1231 assets. 
C)  The depreciation recapture potential for a Sec. 1245 property is not included in the definition of a Sec. 751 asset. 
D)  All of the above are false. 
A)  For Sec. 751 purposes, "substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis. 
B)  Inventory for Sec. 751 purposes includes all property except cash, capital assets, and Sec. 1231 assets. 
C)  The depreciation recapture potential for a Sec. 1245 property is not included in the definition of a Sec. 751 asset. 
D)  All of the above are false.

Question 6

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 7

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 8

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 9

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 10

Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?

Accepted Answer

A)  $0 
B)  $7,000 
C)  $4,000 
D)  none of the above 
A)  $0 
B)  $7,000 
C)  $4,000 
D)  none of the above

Question 11

Which of the following statements is correct?

Accepted Answer

A)  The Sec. 754 election applies to both sales and distributions. 
B)  A partnership can revoke a Sec. 754 election every 5 years. 
C)  The Sec. 754 election applies to only current and nonliquidating distributions. 
D)  A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest. 
A)  The Sec. 754 election applies to both sales and distributions. 
B)  A partnership can revoke a Sec. 754 election every 5 years. 
C)  The Sec. 754 election applies to only current and nonliquidating distributions. 
D)  A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest.

Question 12

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 13

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

Question 14

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?

Accepted Answer

A)  $4,000 long- term capital loss 
B)  $4,000 long- term capital loss and $2,000 ordinary loss 
C)  $4,000 short- term capital loss and $2,000 ordinary loss 
D)  $0 
A)  $4,000 long- term capital loss 
B)  $4,000 long- term capital loss and $2,000 ordinary loss 
C)  $4,000 short- term capital loss and $2,000 ordinary loss 
D)  $0

Question 15

The definition of "unrealized receivable" does not include the

Accepted Answer

A)  right to payment for services performed by a cash- basis taxpayer. 
B)  right to payment for services performed by an accrual- basis taxpayer. 
C)  recapture potential on Sec. 1250 property. 
D)  recapture potential on Sec. 1245 property. 
A)  right to payment for services performed by a cash- basis taxpayer. 
B)  right to payment for services performed by an accrual- basis taxpayer. 
C)  recapture potential on Sec. 1250 property. 
D)  recapture potential on Sec. 1245 property.

Question 16

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

Accepted Answer

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

Question 17

Eicho's interest in the DPQ Partnership is terminated when her basis in the partnership is $70,000. She receives a liquidating distribution of $20,000 cash and inventory with a $24,000 basis and a $40,000 FMV. What is her gain or loss, and what is her basis in the inventory received?

Accepted Answer

She has a recognized loss of $

Question 18

Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago. This year the land is distributed to Sergio, another partner in the partnership. At the time of distribution, the land had a $12,000 FMV. What is the impact of the distribution on Mirabelle's partnership basis?

Accepted Answer

A)  0 
B)  $7,000 increase 
C)  $4,000 increase 
D)  $4,000 decrease 
A)  0 
B)  $7,000 increase 
C)  $4,000 increase 
D)  $4,000 decrease

Question 19

Steve sells his 20% partnership interest having a $28,000 basis to Nancy for $40,000 cash. At the time sale, the partnership has no liabilities and its assets are as follows:   The receivables and inventory are Sec. 751 assets. There is no agreement concerning the allocation o sales price. Steve must recognize

Accepted Answer

A)  $12,000 capital gain. 
B)  no gain or loss. 
C)  $12,000 ordinary income. 
D)  $14,000 ordinary income and $2,000 capital loss. 
A)  $12,000 capital gain. 
B)  no gain or loss. 
C)  $12,000 ordinary income. 
D)  $14,000 ordinary income and $2,000 capital loss.

Question 20

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

When must a partnership make mandatory basis adjustments?

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

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

Identify which of the following statements is true.

Identify which of the following statements is true.

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

Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?

Which of the following statements is correct?

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?

The definition of "unrealized receivable" does not include the

Eicho's interest in the DPQ Partnership is terminated when her basis in the partnership is $70,000. She receives a liquidating distribution of $20,000 cash and inventory with a $24,000 basis and a $40,000 FMV. What is her gain or loss, and what is her basis in the inventory received?

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

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

Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

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Exam 10: Special Partnership Issues

When must a partnership make mandatory basis adjustments?

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

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

Identify which of the following statements is true.

Identify which of the following statements is true.

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

Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?

Which of the following statements is correct?

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?

The definition of "unrealized receivable" does not include the

Eicho's interest in the DPQ Partnership is terminated when her basis in the partnership is $70,000. She receives a liquidating distribution of $20,000 cash and inventory with a $24,000 basis and a $40,000 FMV. What is her gain or loss, and what is her basis in the inventory received?

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

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

Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

Filters