Question 1

If a partner dies,his or her tax year closes

Accepted Answer

A) on the date of death. 
B) on the day after death. 
C) on the day before death. 
D) on some other date. 
A) on the date of death. 
B) on the day after death. 
C) on the day before death. 
D) on some other date. A

Question 2

Identify which of the following statements is false.

Accepted Answer

A) A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive-month period will terminate the partnership and end all of the partnership's elections. 
B) When using the 50% rule to terminate a partnership,if an interest is sold more than once during the 12-month period,each sale is counted separately. 
C) A partner's individual income tax return,under some circumstances,may include the results of partnership operations for a period exceeding 12-months. 
D) When several different transfers are made during a 12-month period,the partnership termination occurs on the date of the transfer that first crosses the 50% threshold. 
A) A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive-month period will terminate the partnership and end all of the partnership's elections. 
B) When using the 50% rule to terminate a partnership,if an interest is sold more than once during the 12-month period,each sale is counted separately. 
C) A partner's individual income tax return,under some circumstances,may include the results of partnership operations for a period exceeding 12-months. 
D) When several different transfers are made during a 12-month period,the partnership termination occurs on the date of the transfer that first crosses the 50% threshold. B

Question 3

The HMS Partnership,a cash method of accounting entity,has the following balance sheet at December 31 of last year:
     Sam,who has a one-third interest in profits,losses,and liabilities,sells his partnership interest to Beverly,for $77,000 cash on January 1 of this year.Sam's basis in his partnership interest (which,of course,includes a share of partnership liabilities)at the time of the sale was $17,000.In addition,Beverly assumes Sam's share of the partnership liabilities.What is the amount and character of the gain that Sam will recognize from this sale?

Accepted Answer

Amount realized = $77,000 +$10,000 liabilities assumed = $87,000.
Realized and recognized gain = $87,000 - $17,000 = $70,000.
The recognized gain is all ordinary income,since it equals his share of the unrealized receivables.

Question 4

Bart has a partnership interest with a $32,000 basis.He receives a current distribution of $6,000 cash,unrealized receivables (FMV $9,000,basis $10,000),inventory (FMV $8,000,basis $4,000),investment land (FMV $7,000,basis $4,000),and building (FMV $20,000,basis $8,000).No depreciation recapture applies with respect to the building.The partners' relative interests in the Sec.751 assets do not change as a result of the current distribution.Bart's basis in the building is

Accepted Answer

A) $3,000. 
B) $4,000. 
C) $6,000. 
D) $8,000. 
A) $3,000. 
B) $4,000. 
C) $6,000. 
D) $8,000.

Question 5

Joshua is a 40% partner in the XY Partnership when he sells his entire interest to Stanley for $60,000 cash.At the time of the sale,Joshua's basis is $36,000,which includes his $10,000 share of partnership liabilities.The partnership has no Sec.751 assets.Calculate Joshua's gain or loss on the sale.

Accepted Answer

The answer of Joshua is a 40% partner in the...

Question 6

A partner's holding period for property distributed as a current distribution begins on the date of distribution.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A) A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest. 
B) The Sec.754 election applies to both sales and distributions. 
C) The Sec.754 election applies to only current and nonliquidating distributions. 
D) A partnership can revoke a Sec.754 election every 5 years. 
A) A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest. 
B) The Sec.754 election applies to both sales and distributions. 
C) The Sec.754 election applies to only current and nonliquidating distributions. 
D) A partnership can revoke a Sec.754 election every 5 years.

Question 8

The Principle Limited Partnership has more than 300 partners and is publicly traded.The Principle was grandfathered under the 1987 Tax Act and has consistently been taxed as a partnership.In the current year,The Principle Limited Partnership will continue to be very profitable and will continue to pay out about 30% of its income to its owners each year.The managing partners of The Principle want to consider the firm's options for taxation in the current and later years.

Accepted Answer

What method should The Principle Limited

Question 9

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

Accepted Answer

A) $0 
B) $300,000 increase in the basis of partnership assets 
C) $100,000 increase in Patrick's basis in the partnership assets 
D) $100,000 increase in Patrick's share of the basis in the partnership assets 
A) $0 
B) $300,000 increase in the basis of partnership assets 
C) $100,000 increase in Patrick's basis in the partnership assets 
D) $100,000 increase in Patrick's share of the basis in the partnership assets

Question 10

Rod owns a 65% interest in the RRR Partnership,a general partnership,which he sells to the two remaining partners - Roger and Regis.The three partners have agreed that Rod will receive $160,000 in cash from the sale.Rod's basis in the partnership interest before the sale is $125,000,which includes his $35,000 share of partnership recourse liabilities.The partnership has assets with a $310,000 FMV and a $210,000 adjusted basis.What issues should Rod,Roger,and Regis consider before this sale takes place?

Accepted Answer

Roger and Regis should consider the foll

Question 11

Identify which of the following statements is true.

Accepted Answer

A) The partnership tax year closes when a partner transfers his interest by gift. 
B) If a partner dies in a two-member partnership,the partnership terminates on the date of death,even though the successor-in-interest continues to share in the profits and losses of the partnership business. 
C) When the interest of a partner who owns 60% of a partnership is completely liquidated by a partnership distribution,the partnership is considered terminated,even though three other partners remain. 
D) All of the above are false. 
A) The partnership tax year closes when a partner transfers his interest by gift. 
B) If a partner dies in a two-member partnership,the partnership terminates on the date of death,even though the successor-in-interest continues to share in the profits and losses of the partnership business. 
C) When the interest of a partner who owns 60% of a partnership is completely liquidated by a partnership distribution,the partnership is considered terminated,even though three other partners remain. 
D) All of the above are false.

Question 12

Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money,accounts receivable having a zero basis to the partnership,and land having a $28,000 basis to the partnership.What is Jerry's basis in his partnership interest after the distribution?

Accepted Answer

The answer of Jerry has a $50,000 basis for his...

Question 13

Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money,plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375,and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000.What is the basis in Tenika's hands of the distributed property?

Accepted Answer

A) $10,000 
B) $6,000 
C) $9,000 
D) $10,125 
A) $10,000 
B) $6,000 
C) $9,000 
D) $10,125

Question 14

David sells his one-third partnership interest to Diana for $60,000 when his basis in the partnership interest is $48,000.On the date of sale,the partnership has no liabilities and the following assets:
   The building is depreciated on a straight-line basis.What tax issues should David and Diana consider with respect to the sale transaction?

Accepted Answer

• Does the partnership have Sec.751 asse

Question 15

Kenya sells her 20% partnership interest having a $28,000 basis to Ebony for $40,000 cash.At the time of the sale,the partnership has no liabilities and its assets are as follows:   Kenya and Ebony have no agreement concerning the allocation of the sales price.Ordinary income recognized by Kenya as a result of the sale is

Accepted Answer

A) $6,000. 
B) $12,000. 
C) $14,000. 
D) $16,000. 
A) $6,000. 
B) $12,000. 
C) $14,000. 
D) $16,000.

Question 16

Identify which of the following statements is true.

Accepted Answer

A) When unrealized receivables are distributed in a liquidating distribution,the basis of the receivables will be increased. 
B) The bases of unrealized receivables and inventory distributed by a partnership in liquidation of a partnership interest are never increased above their bases in the hands of the partnership. 
C) The basis of the partnership interest is apportioned between all of the assets received in a liquidating distribution based on the relative FMVs of the assets. 
D) All of the above are false. 
A) When unrealized receivables are distributed in a liquidating distribution,the basis of the receivables will be increased. 
B) The bases of unrealized receivables and inventory distributed by a partnership in liquidation of a partnership interest are never increased above their bases in the hands of the partnership. 
C) The basis of the partnership interest is apportioned between all of the assets received in a liquidating distribution based on the relative FMVs of the assets. 
D) All of the above are false.

Question 17

The definition of "unrealized receivable" does not include the

Accepted Answer

A) right to payment for services performed by a cash-basis taxpayer. 
B) recapture potential on Sec.1245 property. 
C) recapture potential on Sec.1250 property. 
D) right to payment for services performed by an accrual-basis taxpayer. 
A) right to payment for services performed by a cash-basis taxpayer. 
B) recapture potential on Sec.1245 property. 
C) recapture potential on Sec.1250 property. 
D) right to payment for services performed by an accrual-basis taxpayer.

Question 18

Identify which of the following statements is true.

Accepted Answer

A) If a partner sells property received in a partnership distribution for a gain and the property was inventory in the hands of the distributing partnership,the partner will always recognize ordinary income. 
B) The primary purpose of Sec.751 is to prevent partnerships from converting capital gains into ordinary income. 
C) Unrealized receivables include rights to payments on the sale of a capital asset. 
D) All of the above are false. 
A) If a partner sells property received in a partnership distribution for a gain and the property was inventory in the hands of the distributing partnership,the partner will always recognize ordinary income. 
B) The primary purpose of Sec.751 is to prevent partnerships from converting capital gains into ordinary income. 
C) Unrealized receivables include rights to payments on the sale of a capital asset. 
D) All of the above are false.

Question 19

In a current distribution,the partner's basis in the partnership interest is reduced by the amount of money received and by the partnership's bases in the distributed property.

Accepted Answer

A) True 
 B)False

Question 20

Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago.This year the land is distributed to Sergio,another partner in the partnership.At the time of distribution,the land had a $12,000 FMV.What is the impact of the distribution on Mirabelle's partnership basis?

Accepted Answer

A) 0 
B) $4,000 increase 
C) $4,000 decrease 
D) $7,000 increase 
A) 0 
B) $4,000 increase 
C) $4,000 decrease 
D) $7,000 increase

Exam 10: Special Partnership Issues

If a partner dies,his or her tax year closes

Identify which of the following statements is false.

A partner's holding period for property distributed as a current distribution begins on the date of distribution.

Which of the following statements is correct?

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

Identify which of the following statements is true.

Identify which of the following statements is true.

The definition of "unrealized receivable" does not include the

Identify which of the following statements is true.

In a current distribution,the partner's basis in the partnership interest is reduced by the amount of money received and by the partnership's bases in the distributed property.

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