Exam 11: Partnerships: Distributions, Transfer of Interests, and Terminations

Match the following statements with the best match from the choices below. Note: Choice N may be used more than once -Technical termination

Last year, Miguel contributed nondepreciable property with a basis of $50,000 and a fair market value of $75,000 to the Starling Partnership in exchange for a 25% interest in the partnership. In the current year, he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $50,000 and a fair market value of $62,000. The basis in his partnership interest at the time of the distribution was $60,000. How much gain or loss does Miguel recognize on the distribution? (Assume no other distributions have been made to Miguel, the property he originally contributed is still owned by the partnership, and this is not a disguised sale transaction.)

Misha receives a proportionate nonliquidating distribution when the basis of her partnership interest is $60,000. The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000, fair market value of $20,000). How much gain or loss does Misha recognize, and what is her basis in the distributed inventory and in her partnership interest following the distribution?

Several years ago, the Jaymo Partnership purchased 2,000 shares of ABCO stock (publicly traded) for $40,000; the stock now has a fair market value of $90,000. If this stock is distributed to Jason in liquidation of his 30% partnership interest, it is treated as a cash distribution of $75,000 and a property distribution of $15,000. Assume Jaymo owns no other securities.

In a proportionate liquidating distribution in which the partnership is also liquidated, Ralph received cash of $30,000, accounts receivable (basis of $0, fair market value of $20,000), and equipment (basis of $0, fair market value of $10,000). Immediately before the distribution, Ralph's basis in the partnership interest was $40,000. Ralph realizes and recognizes a loss of $10,000, and his basis is $0 in both the accounts receivable and the equipment.

A gain will only arise on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash.

Normally a distribution of property from a partnership does not result in gain recognition. However, a distribution of marketable securities may be treated, in part, as a distribution of cash that could result in gain recognition.

At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000. She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $40,000), and land (basis of $30,000, fair market value of $50,000). After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are:

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once -Disproportionate distribution

Match the following independent descriptions as "hot" (i.e., ordinary income) or nonhot assets with the statements below -Inventory with a basis of $10,000 and a fair market value of $10,500.

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below -Distribution of cash of $10,000 to a limited partner for goodwill, where goodwill is not provided for in the partnership agreement.

A cash distribution from a partnership to a partner is generally taxable to the partner.

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once -Depreciation recapture

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000), and inventory (basis of $50,000, fair market value of $60,000). Sara's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

Match the following statements with the best match from the choices below. Note: Choice N may be used more than once -Section 754

Rex and Scott operate a law practice in partnership form. Because Rex and Scott are brothers, the partnership is subject to the family partnership income reallocation rules.

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

A § 754 election is made for a tax year in which the partner recognizes gain or loss on a distribution from the partnership or the distributee partner's basis in distributed property is increased or decreased from the inside basis the partnership held in those assets. The election is made by the partnership each year in which it is necessary to adjust a partner's share of the inside basis of partnership assets. In a year in which an unfavorable result would arise, the partnership can forego making the election.

Jeremy sold his 40% interest in the HIJ Partnership to Ashley for $400,000. The inside basis of all partnership assets was $600,000 at the time of the sale. If the partnership makes a § 754 election, it will record a $160,000 step-up in the basis of the partnership assets, and the step-up will be attributed solely to Ashley.

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once -Inventory