Exam 21: Dispositions of Partnership Interests and Partnership Distributions

Tyson is a 25 percent partner in the KT Partnership.On January 1,KT makes a proportionate distribution of $16,000 cash,inventory with a $10,000 fair value (inside basis $4,000),land A with a fair value of $8,000 (inside basis of $12,000),and land B with a fair value of $6,000 (inside basis of $4,000)to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in his KT Partnership interest is $23,000.What is Tyson's basis in the distributed inventory,land A,and land B?

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Question 1

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BPA Partnership is an equal partnership in which each of the partners has a basis in her partnership interest of $20,000.BPA reports the following balance sheet: a.Identify the hot assets if Brooke decides to sell her interest in BPA. b.Are these assets "hot" for purposes of distributions? c.If BPA distributes the land to Brooke in complete liquidation of her partnership interest,what tax issues should be considered?

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a.Inventory is considered "hot" for purposes of a sale of partnership interests.b.Yes,the inventory is also considered "hot" for distribution purposes.c.If BPA distributes the land to Brooke,the distribution would be a disproportionate distribution because Brooke would receive more than her share of the cold assets.Brooke would be treated as having sold her share of hot assets to BPA in exchange for cold assets.The deemed sale would generate ordinary income to Brooke.§751(a)includes unrealized receivables and inventory items as hot assets for purposes of a sale of partnership interest.However,for distributions,§751(b)defines hot assets as substantially appreciated inventory and unrealized receivables.BPA's inventory is considered substantially appreciated because its fair market value exceeds its basis by more than 120 percent.

The PW Partnership's balance sheet includes the following assets immediately before it liquidates: In complete liquidation,PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners).Pamela and Wade each have an outside basis in PW equal to $5,000.PW has no liabilities at the time of the liquidation.What is the amount and character of Pamela's recognized gain or loss?

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Question 3

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Tyson is a 25 percent partner in the KT Partnership.On January 1,KT makes a proportionate distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000)to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in his KT Partnership interest is $20,000.What is Tyson's basis in the distributed land?

(Multiple Choice)

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Question 4

Cash distributions include decreases in a partner's share of partnership liabilities.

(True/False)

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Question 5

When determining a partner's gain on the sale of partnership interest,the selling partner must include her share of partnership debt relief in the amount realized.

(True/False)

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Question 6

Nadine Fimple is a one-third partner in the NWL Partnership with equal inside and outside bases.On January 1,NWL distributes $100,000 to Nadine in complete liquidation of her FPL interest.NWL's balance sheet as of January 1 is as follows: What is the amount and character of Nadine's recognized gain or loss on the distribution?

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Question 7

Zayde is a one-third partner in the ARZ Partnership,with an outside basis of $156,000 on January 1.Zayde sells his partnership interest to Thomas on January 1 for $180,000 cash.The ARZ Partnership has the following assets and no liabilities as of January 1: The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation.The stock was purchased three years ago.What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?

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Question 8

Nadine Fimple is a one-half partner in the NL Partnership with equal inside and outside bases.On January 1,NL distributes accounts receivable with a fair value of $100,000 to Nadine as an operating distribution.NL's balance sheet as of January 1 is as follows: What is the amount and character of Nadine's recognized gain or loss on the distribution?

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Question 9

The SSC,a cash-method partnership,has a balance sheet that includes the following assets on December 31 of the current year: Susan,a one-third partner,has an adjusted basis of $90,000 for her partnership interest.If Susan sells her entire partnership interest to Emma for $100,000 cash,what is the amount and character of Susan's gain or loss from the sale?

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Question 10

Tyson,a one-quarter partner in the TF Partnership,receives a proportionate distribution to liquidate his partnership interest on January 1.The distribution consists of $70,000 cash and inventory with a fair value of $40,000 (inside basis is $22,000).Tyson's outside basis is $90,000,including his $10,000 share of TF's liabilities.What is the amount and character of Tyson's recognized gain or loss? What is Tyson's basis in the distributed inventory?

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Question 11

Jessica is a 25 percent partner in the JRL Partnership.On January 1,JRL distributes $40,000 cash to Jessica.JRL has no hot assets or liabilities at the date of the distribution.Jessica's basis in her JRL partnership interest is $28,000.What is the amount and character of Jessica's gain or loss from the distribution?

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Question 12

Which of the following statements regarding disproportionate distributions is false?

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Question 13

Which of the following statements is false concerning partnership liquidating distributions?

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Question 14

A partner that receives cash in an operating distribution recognizes loss if the cash distributed is less than the partner's outside basis in the partnership immediately before the distribution.

(True/False)

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Question 15

A partner recognizes gain when she receives cash in excess of her outside basis in a liquidating distribution.

(True/False)

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Question 16

Riley is a 50 percent partner in the RF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions.On December 31,Riley receives a proportionate operating distribution of $6,000 cash and a parcel of land with a $14,000 fair value and an $8,000 basis to RF.What is Riley's basis in the distributed property?

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Question 17

Tyson is a 25 percent partner in the KT Partnership.On January 1,KT makes a proportionate distribution of $16,000 cash,inventory with a $16,000 fair value (inside basis $8,000),and land with a fair value of $8,000 (inside basis of $12,000)to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in his KT Partnership interest is $24,000.What is Tyson's basis in the distributed inventory and land?

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Question 18

When a partner receives more than a proportionate share of hot assets in a distribution,the transaction is treated as though the partnership distributes a proportionate share of cold assets to the partner and then the partner sells some or all of those cold assets back to the partnership at fair market value in exchange for a portion of the hot assets actually received in the distribution.

(True/False)

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Question 19

Which of the following statements regarding liquidating distributions is true?

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Question 20

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Cash distributions include decreases in a partner's share of partnership liabilities.

When determining a partner's gain on the sale of partnership interest,the selling partner must include her share of partnership debt relief in the amount realized.

Which of the following statements regarding disproportionate distributions is false?

Which of the following statements is false concerning partnership liquidating distributions?

A partner that receives cash in an operating distribution recognizes loss if the cash distributed is less than the partner's outside basis in the partnership immediately before the distribution.

A partner recognizes gain when she receives cash in excess of her outside basis in a liquidating distribution.

Which of the following statements regarding liquidating distributions is true?

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