Exam 10: Dispositions of Partnership Interests and Partnership Distributions

At the end of last year, Cynthia, a 20percent partner in the five-person CYG partnership, has an outside basis of $23,000, including her $8,500 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $16,000 and the assumption of her share of CYG's debt. CYG has no hot assets. What is the amount and character of Cynthia's recognized gain or loss on the sale?

A partner that receives cash in an operating distribution recognizes gain if the cash distributed exceeds the partner's outside basis in the partnership immediately before the distribution.

Which of the following assets would not be classified as a hot asset?

Tyson, a one-quarter partner in the TF Partnership, receives a proportionate distribution of $70,000 to liquidate his partnership interest on January 1. Tyson's outside basis is $75,000 including his $10,000 share of TF's liabilities. TF does not hold any hot assets. What is the amount and character of Tyson's recognized gain or loss?

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.

Catherine is a 30percent partner in the ACW Partnership, with an outside basis of $20,000. ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest. Catherine recognizes a capital loss of $2,000 on the distribution.

Martha is a 40percent partner in the MMM Partnership, with an outside basis of $50,000. MMM distributes $40,000 cash and accrual-basis accounts receivable with a basis and fair market value of $20,000. Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

Tatia's basis in her TRQ Partnership interest is $33,000. Tatia receives a distribution of $22,000 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?

A disproportionate distribution is a distribution in which the partner's share of the partnership's hot assets either increases or decreases as a result of the distribution.

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

Heidi and Teresa are equal partners in the HT Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $50,000 basis in their partnership interests. On December 31, the partnership makes a pro rata operating distribution to Heidi of $60,000 cash. What is the amount and character of Heidi's recognized gain or loss? What is Heidi's remaining basis in HT?

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

Locke is a 50percent partner in the LS Partnership. Locke has a basis in his partnership interest of $77,500 at the end of the current year, prior to any distribution. On December 31, Locke receives an operating distribution of $49,500 cash. LS has no debt or hot assets. What is the amount and character of Locke's recognized gain or loss? What is Locke's ending basis in his partnership interest?

A §754 election is made by a distributee partner for a tax year in which (1) the distributee partner recognizes gain or loss on a distribution from a partnership or (2) the distributee partner's basis in distributed assets differs from the partnership's inside basis in those assets.

Jenny has a $80,100 basis in her 50 percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Jenny of a parcel of land with an $108,000 fair value and a $87,100 basis to JM. The land is encumbered with a $41,550 mortgage (JM's only liability). What is Jenny's basis in the land and her remaining basis in JM after the distribution?

Inventory is substantially appreciated if the fair market value of all inventory items exceeds 100 percent of their basis to the partnership.

Which of the following is false concerning special basis adjustments under Section 754?

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $33,000. On December 31, KH makes a proportionate operating distribution of $43,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

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 Wade's recognized gain or loss?

Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts receivable with a fair value of $8,000 (inside basis of $0) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $21,000. What is Daniela's basis in the distributed inventory and accounts receivable?