Question 1

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

Accepted Answer

A)  Hot assets include unrealized receivables. 
B)  Hot assets include all inventory. 
C)  Hot assets include substantially appreciated inventory. 
D)  The definition of hot assets for distributions and sales of partnership interests differs. 
A)  Hot assets include unrealized receivables. 
B)  Hot assets include all inventory. 
C)  Hot assets include substantially appreciated inventory. 
D)  The definition of hot assets for distributions and sales of partnership interests differs.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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: $$\begin{array} { l r r } 
& \underline { \text { Basis } } & \underline { \text { FMV } } \
\text { Cash } & \mathbf { \$ 1 0 0 , 0 0 0 } & \mathbf { \$ 1 0 0 , 0 0 0 } \
\text { Accounts receivable } & \underline {  { - 0 } - } & \underline { \mathbf { 1 0 0 , 0 0 0 } } \
\text { Total } & \underline { \mathbf { \$ 1 0 0 , 0 0 0 } } & \underline { \mathbf { \$ 20 0 , 0 0 0 } } \
& & \
\text { Nadine, capital } & \mathbf { \$ 5 0 , 0 0 0 } & \
\text { Louis, capital } & \underline { \mathbf { 5 0 , 0 0 0 } } & \
\text { Total } & \underline { \mathbf { \$ 10 0 , 0 0 0 } } &
\end{array}$$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Accepted Answer

No gain or

Question 4

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: $\begin{array}{l}
\begin{array}{c}
\
Cash\
Inventory\
Total\
\end{array}
\begin{array}{c}
\text { Basis } \
\$ \mathbf{12 0 , 0 0 0} \
\underline{\mathbf{6 0 , 0 0 0}} \
\$ \mathbf{18 0 , 0 0 0} \
\hline
\end{array}
\begin{array}{c}
{\text { FMV }}\
{\$ 120,000} \
\underline{\mathbf{180, 0 0 0}} \
\hline \mathbf{\$300 , 0 0 0} \
\end{array}
\end{array}$

Brooke, capital$\quad\quad\$60,000$
Penelope, capital$\quad\quad60,000$
Amanda, capital$\quad\quad\underline{60,000}$
Total$\quad\quad\quad\quad\quad\quad\$180,000$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Accepted Answer

$40,000 or

Question 5

Hot assets include assets except cash, capital assets and §1231 assets.

Accepted Answer

A) True 
 B)False

Question 6

Under which of the following circumstances will a selling partner's capital account not carry over to the purchaser of the partnership interest?

Accepted Answer

A)  A selling partner's capital account will always carry over to the purchaser. 
B)  A selling partner's capital account will never carry over to the purchaser. 
C)  A selling partner's capital account will not carry over to the purchaser when the purchaser purchases the interest with property other than cash. 
D)  A selling partner's capital account will not carry over to the purchaser when the selling partner contributed built-in loss property to the partnership. 
A)  A selling partner's capital account will always carry over to the purchaser. 
B)  A selling partner's capital account will never carry over to the purchaser. 
C)  A selling partner's capital account will not carry over to the purchaser when the purchaser purchases the interest with property other than cash. 
D)  A selling partner's capital account will not carry over to the purchaser when the selling partner contributed built-in loss property to the partnership.

Question 7

The VRX Partnership (a calendar year-end entity) has the following assets and no liabilities: $\begin{array}{l}
\begin{array}{lrr}
&\text { Basis} &\text { FMV} \
\hline
\text { Cash } & \$ 27,000 & \$ 27,000 \
\text { Accounts receivable } & -0- & 18,000 \
\text { Inventory } & 103,500 & 121,500 \
\text { Equipment } & \mathbf{2 7 0 , 0 0 0} & \mathbf{3 3 7 , 5 0 0} \
\text { Stock investment } & \underline{67,500} & \underline{\mathbf{6 2 , 5 0 0}} \
\text { Totals } & \underline{\underline{\$ 468,000}} & \underline{\$ 566,500}
\end{array}
\end{array}$ The equipment was purchased for $360,000 and VRX has taken $90,000 of depreciation. The stock was purchased 7 years ago. What are VRX's hot assets for purposes of a sale of partnership interest?

Accepted Answer

The hot assets include the pot

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD distributes $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 $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is $20,000. What is Daniela's basis in the distributed inventory and accounts receivable?

Accepted Answer

A)  $2,000 inventory, $2,000 accounts receivable 
B)  $8,000 inventory, $12,000 accounts receivable 
C)  $0 inventory, $4,000 accounts receivable 
D)  $16,000 inventory, $8,000 accounts receivable 
A)  $2,000 inventory, $2,000 accounts receivable 
B)  $8,000 inventory, $12,000 accounts receivable 
C)  $0 inventory, $4,000 accounts receivable 
D)  $16,000 inventory, $8,000 accounts receivable

Question 10

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

Accepted Answer

A)  Partners may either increase or decrease the basis in inventory distributed in a liquidating distribution. 
B)  Partners may only increase the basis in inventory distributed in a liquidating distribution. 
C)  Partners may only decrease the basis in inventory distributed in a liquidating distribution. 
D)  None of these statements is true. 
A)  Partners may either increase or decrease the basis in inventory distributed in a liquidating distribution. 
B)  Partners may only increase the basis in inventory distributed in a liquidating distribution. 
C)  Partners may only decrease the basis in inventory distributed in a liquidating distribution. 
D)  None of these statements is true.

Question 11

Riley is a 50% 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?

Accepted Answer

A)  Cash $6,000, land $0 
B)  Cash $6,000, land $8,000 
C)  Cash $6,000, land $14,000 
D)  Cash $6,000, land $22,000 
A)  Cash $6,000, land $0 
B)  Cash $6,000, land $8,000 
C)  Cash $6,000, land $14,000 
D)  Cash $6,000, land $22,000

Question 12

Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment with a fair value of $20,000 (inside basis of $10,000), and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in RD is $48,000. What is Randolph's basis in the distributed investment and land?

Accepted Answer

A)  $10,000 investment, $5,000 land 
B)  $22,000 investment, $11,000 land 
C)  $20,000 investment, $10,000 land 
D)  $20,000 investment, $13,000 land 
A)  $10,000 investment, $5,000 land 
B)  $22,000 investment, $11,000 land 
C)  $20,000 investment, $10,000 land 
D)  $20,000 investment, $13,000 land

Question 13

Under which of the following circumstances will a partner recognize a gain from an operating distribution?

Accepted Answer

A)  A partner will never recognize a gain from an operating distribution. 
B)  A partner will recognize a gain from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest. 
C)  A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest. 
D)  A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest. 
A)  A partner will never recognize a gain from an operating distribution. 
B)  A partner will recognize a gain from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest. 
C)  A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest. 
D)  A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

Question 14

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{lrr}
&\underline{Basis}&\underline{FMV}\
\text { Cash } & \$ \mathbf{\$ 1 0 , 0 0 0} & \$ \mathbf{\$ 1 0 , 0 0 0} \
\text { Unrealized receivables } & \underline{-0-} & \underline{\mathbf{\$ 2 0 , 0 0 0}} \
\text { Total } &\underline{\underline{{\mathbf{\$ 1 0 , 0 0 0}}}}& \underline{\underline{\$20,000}}
\end{array}$ 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?

Accepted Answer

A)  $0 
B)  $5,000 capital gain 
C)  $5,000 ordinary income 
D)  $2,500 capital gain and $2,500 ordinary income 
A)  $0 
B)  $5,000 capital gain 
C)  $5,000 ordinary income 
D)  $2,500 capital gain and $2,500 ordinary income

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

Jason is a 25% partner in the JJM Partnership when he sells his entire interest to Lavelle for $76,000. At the time of the sale, Jason's basis in JJM is $87,000. JJM does not have any debt or hot assets. Jason's will recognize a gain of $11,000 on the sale of his partnership interest.

Accepted Answer

A) True 
 B)False

Question 18

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: $\begin{array}{lrr}
\text { Assets: } & \underline{\text { Basis }} & \underline{\text { FMV }} \
\text { Cash } & \mathbf{\$ 2 2 , 0 0 0} & \$ \mathbf{2 2 , 0 0 0} \
\text { Stock (investment) } & 11,000 & 22,000 \
\text { Land } & \underline{66,000} & \underline{22,000} \
\text { Totals } & \underline{\underline{\$ 99,000}} & \underline{\underline{\$ 66,000}}
\end{array}$

$\begin{array}{l}
\text { Liabilities and capital: }\
\begin{array}{cr}
\text { Capital - Tatia } &&&& 33,000 \
\text { - Rihanna } &&&& 33,000 \
\text { - Quinn } &&&& \underline{33,000} \
\text { Totals } &&&& \$ 99000
\end{array}
\end{array}$ 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 of the special basis adjustment?

Accepted Answer

a. $11,000 capital l

Question 19

Joan is a 30% partner in the OJT Partnership when she sells her entire interest to Crissy for $100,000 cash. At the time of the sale, Joan's basis in OJT is $63,000 (which includes her $10,000 share of OJT liabilities). OJT does not have any hot assets. What is the amount and character of Joan's gain or loss on the sale?

Accepted Answer

$47,000 ca

Question 20

Randolph is a 30% 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 RD is $37,000. What is the amount and character of Randolph's gain or loss on the distribution?

Accepted Answer

A)  $0 gain or loss. 
B)  $11,000 capital gain. 
C)  $11,000 ordinary income. 
D)  $11,000 capital loss. 
A)  $0 gain or loss. 
B)  $11,000 capital gain. 
C)  $11,000 ordinary income. 
D)  $11,000 capital loss.

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

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

Hot assets include assets except cash, capital assets and §1231 assets.

Under which of the following circumstances will a selling partner's capital account not carry over to the purchaser of the partnership interest?

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

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

Under which of the following circumstances will a partner recognize a gain from an operating distribution?

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.

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.

Jason is a 25% partner in the JJM Partnership when he sells his entire interest to Lavelle for $76,000. At the time of the sale, Jason's basis in JJM is $87,000. JJM does not have any debt or hot assets. Jason's will recognize a gain of $11,000 on the sale of his partnership interest.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters

Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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

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

Hot assets include assets except cash, capital assets and §1231 assets.

Under which of the following circumstances will a selling partner's capital account not carry over to the purchaser of the partnership interest?

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

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

Under which of the following circumstances will a partner recognize a gain from an operating distribution?

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.

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.

Jason is a 25% partner in the JJM Partnership when he sells his entire interest to Lavelle for $76,000. At the time of the sale, Jason's basis in JJM is $87,000. JJM does not have any debt or hot assets. Jason's will recognize a gain of $11,000 on the sale of his partnership interest.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters