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

Cindy,a 20% general partner in the CDE Partnership,wants to retire and has approached the other partners about having the partnership buy her out.The partnership is a cash basis,service oriented partnership in which Cindy is an active partner.The partnership assets consist primarily of unrealized receivables and cash.The partnership also has substantial going concern value (goodwill)which is probably its most valuable asset.The other partners in the partnership are also active in the business and are not related to Cindy. Discuss from Cindy's viewpoint how you would structure the liquidation of her interest under § 736.Answer as if you are her advocate.Do you think the other partners will agree with this structure? If not,what structure would they prefer?

Which of the following transactions will not result in termination of a partnership for Federal tax purposes?

Match the following statements with the best match from the choices below. Note: Choice K may be used more than once. a.Terminates the partner's interest in the partnership. b.Ordinary income-producing items. c.An unrealized receivable. d.Cash, then inventory and unrealized receivables, then other assets. e.Cash basis accounts receivable, for example. f.Fair market value exceeds 120% of basis. g.Changes the partner's or the partnership's ordinary income potential. h.Any partnership assets other than cash, capital, or § 1231 assets. i.Does not eliminate the partner's interest in the partnership. j.A distribution of all partnership hot assets. k.No correct match provided. -Liquidating distribution

Match the following statements with the best match from the choices below. Note: Choice M may be used more than once. a.Includes the partner's share of partnership liabilities. b.Could result from sale of a partnership interest for less than the partner's share of the inside basis of assets. c.Liquidation payments from this type of partnership are always § 736(b) payments. d.Could arise if a distribution results in gain to the distributee partner. e.May be a § 736(a) payment. f.May receive § 736(a) payments. g.Sale of more than 50% in less than 12 months. h.Liquidation payments from this type of partnership may include § 736(a) payments. i.A § 736(b) payment. j.Adjustment designed to bring inside and outside bases into balance. k.Partnership asset basis is at least $250,000 > FMV. l.Would result if the partner contributes appreciated property to the partnership. m.No correct match is provided. -Sales price of partnership interest