Exam 21: Dispositions of Partnership Interests and Partnership Distributions

Scott is a 50 percent partner in the LS Partnership. Scott has a basis in his partnership interest of $102,000 at the end of the current year, prior to any distribution. On December 31, Scott receives an operating distribution of $10,800 cash and a parcel of land with a $30,000 fair market value and a $30,000 basis to the partnership. LS has no debt or hot assets. What is the amount and character of Scott's recognized gain or loss? What is Scott's basis in the distributed property? What is Scott's ending basis in his partnership interest?

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Question 1

Correct Answer:

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Scott recognizes no gain or loss. He takes a ${{[a(3)]:#,###}} basis in the cash and ${{[a(5)]:#,###}} basis in the land. His ending basis in LS is ${{[a(6)]:#,###}}.
Scott takes a transferred basis in the distributed property (${{[a(3)]:#,###}} cash; ${{[a(5)]:#,###}} land). He reduces his basis in LS from ${{[a(2)]:#,###}} to ${{[a(6)]:#,###}} (${{[a(2)]:#,###}} − ${{[a(3)]:#,###}} − ${{[a(5)]:#,###}}).

Randolph is a 30percent partner in the RD Partnership. On January 1, RD distributes $26,000 cash to Randolph in complete liquidation of his interest. RD has only capital assets and no liabilities at the date of the distribution. Randolph's basis in his RD Partnership interest is $37,000. What is the amount and character of Randolph's gain or loss on the distribution?

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Question 2

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Tatia's basis in her TRQ Partnership interest is $33,700. Tatia receives a distribution of $24,100 cash from TRQ in complete liquidation of her interest. The three partners in TRQ share profits, losses, and capital equally. TRQ has the following balance sheet: a. What is the amount and character of Tatia's recognized gain or loss? What is the effect on the partnership assets? b. If TRQ has a §754 election in place, what is the amount and sign (positive or negative)of the special basis adjustment?

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Question 3

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a. ${{[a(14)]:#,###}}capital loss; no effect on TRQ's assets.
b. ${{[a(14)]:#,###}}negative adjustment to TRQ assets.
Tatia receives only money in the distribution and the amount is less than her outside basis, so she recognizes a capital loss on the liquidation. If TRQ has a §754 election in effect at the time of the distribution, TRQ will have a special basis adjustment of ${{[a(14)]:#,###}} and will decrease TRQ's bases because Tatia recognized a loss on the liquidating distribution.

Tyson is a 25percent 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?

(Multiple Choice)

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Question 4

In an operating distribution, when a partnership distributes property other than money with a basis that exceeds the partner's outside basis, the partner assigns a carryover basis to the distributed asset and recognizes a gain.

(True/False)

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Question 5

Which of the following statements is true regarding partnership operating distributions?

(Multiple Choice)

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Question 6

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

(True/False)

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Question 7

Which of the following statements regarding hot assets for purposes of disproportionate distributions is false?

(Multiple Choice)

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Question 8

Shauna is a 50 percent partner in the SH Partnership. Shauna sells one-half of her interest to Kara for $60,000 cash. Just before the sale, Shauna's basis in her entire partnership interest is $150,000, including her $60,000 share of the partnership liabilities. SH's assets on the sale date are as follows: What is the amount and character of Shauna's gain or loss on the sale?

(Multiple Choice)

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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?

(Multiple Choice)

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Question 10

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prior to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: If KDP has a §754 election in place, what is Kathy's special basis adjustment?

(Multiple Choice)

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Question 11

Doris owns a one-third capital and profits interest in the calendar-year DB Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $18,600. On that date, she receives an operating distribution of her share of partnership assets shown below: What is the amount and character of Doris's gain or loss on the distribution? What is her basis in the distributed assets?

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Question 12

A partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

(True/False)

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Question 13

Katrina is a one-third partner in the KYR Partnership (calendar year-end). Katrina decides she wants to exit the partnership and receives a proportionate distribution to liquidate her partnership interest on January 1. The partnership has no liabilities and holds the following assets as of January 1: Katrina receives one-third of each of the partnership assets. She has a basis in her partnership interest of $250,000. What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

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Question 14

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 15

A partner will recognize a loss from a liquidating distribution when the distribution includes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets.

(True/False)

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Question 16

Brian is a 25percent partner in the BC Partnership. On January 1, BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000)to Brian. BC has no liabilities at the date of the distribution. Brian's basis in his BC Partnership interest is $16,000. What is the amount and character of Brian's gain or loss on the distribution?

(Multiple Choice)

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Question 17

A partner recognizes a loss when she receives cash and other property with inside bases greater than her outside basis in a liquidating distribution.

(True/False)

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Question 18

Under the entity concept, a partnership interest is an intangible asset similar to an ownership interest in a corporation. As such, a partnership interest is generally treated as a capital asset, the disposal of which results in capital gain or loss.

(True/False)

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Question 19

Tyson is a 25percent 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?

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Question 20

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In an operating distribution, when a partnership distributes property other than money with a basis that exceeds the partner's outside basis, the partner assigns a carryover basis to the distributed asset and recognizes a gain.

Which of the following statements is true regarding partnership operating distributions?

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

Which of the following statements regarding hot assets for purposes of disproportionate distributions is false?

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prior to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: If KDP has a §754 election in place, what is Kathy's special basis adjustment?

A partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

A partner will recognize a loss from a liquidating distribution when the distribution includes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets.

A partner recognizes a loss when she receives cash and other property with inside bases greater than her outside basis in a liquidating distribution.

Under the entity concept, a partnership interest is an intangible asset similar to an ownership interest in a corporation. As such, a partnership interest is generally treated as a capital asset, the disposal of which results in capital gain or loss.

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