Question 1

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

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Question 2

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

Question 3

The CHS Partnership's balance sheet presented below is prepared on a cash basis at September 30 of the current year.  
Cindy withdraws from the partnership under an agreement whereby she takes one- third of each of the three assets and assumes $10,000 of the notes payable. Her basis for the partnership interest before any distribution is
$25,000. What gain/loss should she report for tax purposes?

Accepted Answer

No gain or loss is recognized by Cindy or the partnership on the distribution of the Sec. 751 properties, since Cindy received only her proportionate share of the partnership's assets and liabilities and the amount of cash deemed distributed ($14,000 = $4,000 cash + $10,000 release from liabilities) is less than her $25,000 ($15,000 + $10,000 liabilities) basis for the partnership interest.

Question 4

Identify which of the following statements is true.

Accepted Answer

A)   Jake has a basis in his partnership interest of $40,000 before receiving a liquidating distribution of $5,000 cash, inventory with a basis of $4,000 and an FMV of $5,000, and land with a basis of $3,000 and an FMV of $6,000. Jake will receive no further distributions. He can recognize a loss of $28,000 at the time the liquidating distribution is received.
B)   On December 31 of the current year, Max Curcio's adjusted basis for his interest in the Maduro & Motta Partnership is $36,000. Maduro & Motta distributes cash of $6,000 and a parcel of land held as an investment to Curcio in liquidation of his entire interest in the partnership. The land has an adjusted basis of $18,000 to the partnership and an FMV of $42,000. Curcio's basis in the land is $18,000.
C)   A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution.
D)   All of the above are false.

Question 5

Which of the following is a valid reason for making a 754 election?

Accepted Answer

A)   A partnership can reduce its basis in assets upon cash distributions to partners.
B)   Partnerships can increase, but not decrease, their basis in partnership assets.
C)   Partners are able to increase their basis in the partnership interest upon the sale of a partnership interest.
D)   An incoming partner pays more for a partnership interest that his or her proportionate share of partnership assets.

Question 6

The definition of "inventory" for purposes of Sec. 751 includes

Accepted Answer

A)   marketable securities not held by dealers.
B)   land held for investment.
C)   depreciation recapture potential on Sec. 1231 assets.
D)   cash.

Question 7

What is included in the definition of unrealized receivables?

Accepted Answer

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Question 8

A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane's capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits. Diane's basis in the partnership interest prior to Gary's admission is $5,000. Due to the admission of Gary, partner Diane has

Accepted Answer

A)   a recognized gain of $5,000 and a partnership interest basis of zero.
B)   no recognized gain or loss.
C)   no recognized gain or loss and a partnership interest basis of $10,000.
D)   a recognized gain of $5,000 and a partnership interest basis of $5,000.

Question 9

When a retiring partner receives payments that exceed the value of that partner's partnership property, the excess payment is a guaranteed payment.

Accepted Answer

A) True 
 B)False

Question 10

Identify which of the following statements is true.

Accepted Answer

A)   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.
B)   When unrealized receivables are distributed in a liquidating distribution, the basis of the receivables will be increased.
C)   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.
D)   All of the above are 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

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Question 12

What conditions are required for a partner to recognize a loss upon receipt of a distribution from a partnership?

Accepted Answer

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Question 13

Identify which of the following statements is true.

Accepted Answer

A)   The rule for recognizing gain on a liquidating distribution is the same rule that is used for a current distribution.
B)   A liquidating distribution that terminates a partnership interest cannot include more than one distribution.
C)   A partnership with a large amount of unrealized receivables and substantially appreciated inventory items liquidated and distributed all of its assets in kind to each partner in proportion to their partnership interests. Each partner will report ordinary income at the time these assets are received equal to their FMV.
D)   All of the above are false.

Question 14

A partnership terminates for tax purposes

Accepted Answer

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

Question 15

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

Question 16

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

Question 17

On November 30, Teri received a current distribution of cash of $4,000, marketable securities with a basis of
$24,000 and an FMV of $30,000, and inventory with a basis of $2,000 and an FMV of $6,000. Prior to the distribution, Teri's basis in her interest in the partnership was $30,000. (There is no Sec. 751 exchange as a result of the distribution.) How much gain (if any) must Teri recognize as a result of the distribution?

Accepted Answer

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Question 18

Brown Company recently has been formed as a limited liability company (LLC). Brown Company is owned equally by three individuals-Gene, Susan, and Sandra-all of whom have substantial income from other sources. Brown is a manufacturing firm and expects to earn approximately $130,000 of ordinary income and
$30,000 of long- term capital gain each year for the next several years. Gene will be a full- time manager and will receive a salary of $60,000 each year. What tax issues should the owners consider regarding the LLC's initial year of operations?

Accepted Answer

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Question 19

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

Accepted Answer

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Question 20

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

Exam 10: Special Partnership Issues

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

Identify which of the following statements is true.

Which of the following is a valid reason for making a 754 election?

The definition of "inventory" for purposes of Sec. 751 includes

What is included in the definition of unrealized receivables?

When a retiring partner receives payments that exceed the value of that partner's partnership property, the excess payment is a guaranteed payment.

Identify which of the following statements is true.

What conditions are required for a partner to recognize a loss upon receipt of a distribution from a partnership?

Identify which of the following statements is true.

A partnership terminates for tax purposes

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?

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