Question 1

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 2

Doris owns a 1/3 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 $20,000. On that date, she receives an operating distribution of her share of partnership assets shown below:
   What is the amount and character of Doris' gain or loss on the distribution? What is her basis in the distributed assets?

Accepted Answer

$7,000 capital gain. Her basis in the ca

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If the partnership has hot assets at the time a partnership interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (loss).

Accepted Answer

A) True 
 B)False

Question 5

Brian is a 25% 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?

Accepted Answer

A)  $0. 
B)  $4,000 capital gain. 
C)  $12,000 capital gain. 
D)  $20,000 capital gain. 
A)  $0. 
B)  $4,000 capital gain. 
C)  $12,000 capital gain. 
D)  $20,000 capital gain.

Question 6

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?

Accepted Answer

$10,000 capital gain; $0 basis in HT.
Se

Question 7

Tyson is a 25% 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?

Accepted Answer

A)  $0. 
B)  $4,000. 
C)  $8,000. 
D)  $16,000. 
A)  $0. 
B)  $4,000. 
C)  $8,000. 
D)  $16,000.

Question 8

Zayde is a 1/3 partner in the ARZ partnership with an outside basis of $156,000 on January 1. Zayde sells his partnership interest to Thomas on January 1st for $180,000 cash. The ARZ Partnership has the following assets and no liabilities as of January 1:
   The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation. The stock was purchased 3 years ago. What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?

Accepted Answer

$10,500 capital loss and $34,500 ordinar

Question 9

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a proportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) 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 the amount and character of Daniela's gain or loss from the distribution?

Accepted Answer

A)  $0. 
B)  $14,000 ordinary income. 
C)  $4,000 capital loss. 
D)  $4,000 capital gain. 
A)  $0. 
B)  $14,000 ordinary income. 
C)  $4,000 capital loss. 
D)  $4,000 capital gain.

Question 10

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 his RD partnership interest 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.

Question 11

Jessica is a 25% partner in the JRL Partnership. On January 1, JRL distributes $40,000 cash to Jessica. JRL has no hot assets or liabilities at the date of the distribution. Jessica's basis in her JRL partnership interest is $28,000. What is the amount and character of Jessica's gain or loss from the distribution?

Accepted Answer

A)  $0. 
B)  $12,000 ordinary income. 
C)  $12,000 capital loss. 
D)  $12,000 capital gain. 
A)  $0. 
B)  $12,000 ordinary income. 
C)  $12,000 capital loss. 
D)  $12,000 capital gain.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Joan is a 1/3 partner in the PDJ Partnership. PDJ Partnership uses the proration method to allocate income and losses to partners with varying interests. On May 1, Joan sells her interest to Freddie for a cash payment of $75,000. On January 1, Joan's basis in PDJ is $57,000. PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt income during the first four months of the year. PDJ has the following assets and no liabilities at the sale date:
   What is the amount and character of Joan's gain or loss on the sale?

Accepted Answer

$5,000 capital loss.
Loss of $

Question 14

Daniela is a 25% 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?

Accepted Answer

A)  $8,000 inventory, $0 accounts receivable. 
B)  $6,000 inventory, $1,000 accounts receivable. 
C)  $5,000 inventory, $0 accounts receivable. 
D)  $16,000 inventory, $8,000 accounts receivable. 
A)  $8,000 inventory, $0 accounts receivable. 
B)  $6,000 inventory, $1,000 accounts receivable. 
C)  $5,000 inventory, $0 accounts receivable. 
D)  $16,000 inventory, $8,000 accounts receivable.

Question 15

The SSC Partnership balance sheet includes the following assets on December 31 of the current year:   Susan, a 1/3 partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $120,000 cash, how much capital gain and ordinary income must Susan recognize from the sale?

Accepted Answer

A)  $30,000 ordinary income. 
B)  $30,000 capital gain. 
C)  $10,000 ordinary income; $20,000 capital gain. 
D)  $10,000 capital gain; $20,000 ordinary income. 
A)  $30,000 ordinary income. 
B)  $30,000 capital gain. 
C)  $10,000 ordinary income; $20,000 capital gain. 
D)  $10,000 capital gain; $20,000 ordinary income.

Question 16

Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

Accepted Answer

A) True 
 B)False

Question 17

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  If a partner's outside basis is greater than the bases of the assets distributed in an operating distribution, the partner will recognize a loss. 
B)  If a partner's outside basis is less than the bases of the assets distributed in an operating distribution, the partner will recognize a loss. 
C)  If a partner's outside basis is greater than the bases of the assets distributed in an operating distribution, the partner will recognize a gain. 
D)  None of the statements are true. 
A)  If a partner's outside basis is greater than the bases of the assets distributed in an operating distribution, the partner will recognize a loss. 
B)  If a partner's outside basis is less than the bases of the assets distributed in an operating distribution, the partner will recognize a loss. 
C)  If a partner's outside basis is greater than the bases of the assets distributed in an operating distribution, the partner will recognize a gain. 
D)  None of the statements are true.

Question 19

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

Accepted Answer

A)  A partner who receives a liquidating distribution can retain an interest in the partnership. 
B)  A partnership agreement may restrict the sale of a partnership making a liquidating distribution the only way a partner can close out his interest in the partnership. 
C)  Liquidating a single partner's interest is similar in concept to a corporate redemption of a shareholder's interest. 
D)  None of these statements is false 
A)  A partner who receives a liquidating distribution can retain an interest in the partnership. 
B)  A partnership agreement may restrict the sale of a partnership making a liquidating distribution the only way a partner can close out his interest in the partnership. 
C)  Liquidating a single partner's interest is similar in concept to a corporate redemption of a shareholder's interest. 
D)  None of these statements is false

Question 20

At the end of last year, Cynthia, a 20% partner in the five-person CYG partnership, has an outside basis of $30,000 including her $15,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $22,500 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?

Accepted Answer

A)  $7,500 capital loss. 
B)  $7,500 ordinary loss. 
C)  $7,500 capital gain. 
D)  $7,500 ordinary income. 
A)  $7,500 capital loss. 
B)  $7,500 ordinary loss. 
C)  $7,500 capital gain. 
D)  $7,500 ordinary income.

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

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

If the partnership has hot assets at the time a partnership interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (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.

Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

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

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

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

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

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Transfer Taxes and Wealth Planning

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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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

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

If the partnership has hot assets at the time a partnership interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (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.

Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

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

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

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

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

Filters