Question 1

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

The answer of Rod owns a 65% interest in the...

Question 2

Identify which of the following statements is true.

Accepted Answer

A)  John Albin is a retired partner of Brill & Crum, a personal service partnership. Albin has not rendered any services to Brill & Crum since his retirement six years ago. Under the provisions of Albin's retirement agreement, Brill & Crum is obligated to pay Albin 10% of the partnership's net income each year through the end of the current year. In compliance with the agreement, Brill & Crum pay Albin $25,000 in the current year. Albin should treat this $25,000 as a long-term capital gain. 
B)  An exchange of partnership interests in different partnerships qualifies under the like-kind exchange rules. 
C)  The payment for partnership property to a retiring partner is not deductible by the partnership and often not income to the retiring partner. 
D)  All of the above are false.

Question 3

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. How much gain should Mirabelle and Sergio recognize?

Accepted Answer

A)   
B)   
C)   
D)

Question 4

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

Question 5

What is the character of the gain/loss on the sale of a partnership interest?

Accepted Answer

The answer of What is the character of the gain/loss...

Question 6

A partnership terminates for tax purposes

Accepted Answer

A)  only when it terminates under local partnership law. 
B)  when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months. 
C)  when the sale of partnership assets is made only to an outsider(s) and not to an existing partner(s). 
D)  when a partnership tax return (Form 1065) ceases to be filed by the partnership.

Question 7

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV. The partnership has claimed $16,000 in depreciation on the machine since its purchase. If the machine is sold for its FMV, would TK Partnership have an unrealized receivable item?

Accepted Answer

The answer of The TK Partnership has two assets: $20,000...

Question 8

Identify which of the following statements is true.

Accepted Answer

A)  The basis for property distributed by a partnership cannot be increased above the carryover basis amount when it is received by a partner in a nonliquidating distribution. 
B)  A partner's partnership capital account balance cannot be less than zero. 
C)  The length of time a partner owns a partnership interest is relevant when determining the holding period for distributed property. 
D)  All of the above are false.

Question 9

The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000. The partnership has taken an $8,000 depreciation on the machine. The unrealized receivable related to the machine is

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $8,000. 
D)  $20,000.

Question 10

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 11

Tony sells his one-fourth interest in the WindyCity Partnership to Bill for $100,000 cash when the partnership's assets are as follows:
  The partnership has no liabilities on the sale date. Tony's basis in his partnership interest on the date of the sale is $60,000. What is the amount of gain realized by Tony on the sale of his partnership interest?

Accepted Answer

The answer of Tony sells his one-fourth interest in the...

Question 12

What is the definition of "substantially appreciated inventory"?

Accepted Answer

A)  inventory with a FMV greater than its basis 
B)  inventory and unrealized receivables with a FMV greater than their basis 
C)  inventory with a FMV greater than 120% of its basis 
D)  inventory and unrealized receivables with a FMV greater than 120% of their basis

Question 13

Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?

Accepted Answer

A)  $0 
B)  $4,000 
C)  $7,000 
D)  none of the above

Question 14

Ted King's basis for his interest in the Troy Partnership is $24,000. In complete liquidation of his interest, King receives cash of $4,000 and real property (not a Sec. 751 asset) having an FMV of $40,000. Troy's adjusted basis for this realty is $15,000. Section 736 does not apply. King's basis for this realty is

Accepted Answer

A)  $15,000. 
B)  $20,000. 
C)  $36,000. 
D)  $40,000.

Question 15

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000. The partnership has assets with a basis of $1,600,000. What is the amount of the basis adjustment, if the partnership has a 754 election in place?

Accepted Answer

A)  $0 
B)  $150,000 increase in Han's basis in his partnership interest 
C)  $200,000 increase in Han's share of the basis in partnership assets 
D)  $1,000,000 increase in partnership assets

Question 16

A partner can recognize gain, but not loss, on a liquidating distribution.

Accepted Answer

A) True 
 B)False

Question 17

Can a partner recognize both a gain and a loss on the sale of a partnership interest? If so, under what conditions?

Accepted Answer

The answer of Can a partner recognize both a gain...

Question 18

Tony sells his one-fourth interest in the WindyCity Partnership to Bill for $100,000 cash when the partnership's assets are as follows:
  The partnership has no liabilities on the sale date. Tony's basis in his partnership interest on the date of the sale is $60,000. What are the amount and character of Tony's gain?

Accepted Answer

The answer of Tony sells his one-fourth interest in the...

Question 19

On December 31, Kate sells her 20% interest (with a basis of $18,000 which, of course, includes a share of partnership liabilities) in the KLM Partnership to Karl for $27,000 cash plus assumption of her $6,000 share of liabilities. On that date, the partnership has the following balance sheet:
   What are the amount and character of the gain that Kate must recognize on the sale?

Accepted Answer

The answer of On December 31, Kate sells her 20%...

Question 20

Identify which of the following statements is true.

Accepted Answer

A)  When a partnership is divided into two or more new partnerships, all of the resulting partnerships must be considered new partnerships. 
B)  A partnership is "publicly traded" only if its interests are traded on an established securities exchange. 
C)  A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form. 
D)  All of the above are false.

Exam 10: Special Partnership Issues

Identify which of the following statements is true.

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. How much gain should Mirabelle and Sergio recognize?

What is the character of the gain/loss on the sale of a partnership interest?

A partnership terminates for tax purposes

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV. The partnership has claimed $16,000 in depreciation on the machine since its purchase. If the machine is sold for its FMV, would TK Partnership have an unrealized receivable item?

Identify which of the following statements is true.

The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000. The partnership has taken an $8,000 depreciation on the machine. The unrealized receivable related to the machine is

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.

What is the definition of "substantially appreciated inventory"?

Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000. The partnership has assets with a basis of $1,600,000. What is the amount of the basis adjustment, if the partnership has a 754 election in place?

A partner can recognize gain, but not loss, on a liquidating distribution.

Can a partner recognize both a gain and a loss on the sale of a partnership interest? If so, under what conditions?

Identify which of the following statements is true.