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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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

A) Partners will never recognize a gain on an operating distribution.
B) Partners receiving a distribution of property other than money will take a basis in the property equal to its fair market value.
C) Partners will never recognize a loss on an operating distribution.
D) None of the statements are true.

E) B) and D)
F) C) and D)

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Question 22

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Sarah is a 50 percent partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Sarah receives a proportionate operating distribution of $20,000 cash. What is the amount and character of Sarah's recognized gain or loss and what is her basis in her partnership interest?

A) $0 gain, $36,000 basis.
B) $0 gain, $56,000 basis.
C) $20,000 ordinary income, $56,000 basis.
D) $20,000 ordinary income, $36,000 basis.

E) B) and C)
F) All of the above

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Question 23

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Randolph is a 30 percent partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment with a fair value of $20,000 (inside basis of $10,000) , and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in his RD Partnership interest is $48,000. What is Randolph's basis in the distributed investment and land?

Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 in cash to Barry. As a result of the distribution, Barry reduces his basis in the partnership interest to $0, has a $60,000 basis in the cash received, and recognizes a gain of $10,000 on the distribution.

Which of the following assets would not be classified as a hot asset?

Tyson is a 25 percent partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $10,000 fair value (inside basis $4,000) , land A with a fair value of $8,000 (inside basis of $12,000) , and land B with a fair value of $6,000 (inside basis of $4,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT Partnership interest is $23,000. What is Tyson's basis in the distributed inventory, land A, and land B?

The SSC, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: Susan, a one-third partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $100,000 cash, what is the amount and character of Susan's gain or loss from the sale?

Daniela is a 25 percent partner in the JRD Partnership. On January 1, JRD makes a proportionate, liquidating 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 $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $20,000. What is the amount and character of Daniela's gain or loss from the distribution?

Daniela is a 25 percent 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?

Lola is a 35 percent partner in the LW Partnership. On January 1, LW distributes $39,000 cash to Lola in complete liquidation of her partnership interest. LW has only capital assets and no liabilities at the date of the distribution. Lola's basis in LW is $50,000. What is the amount and character of Lola's gain or loss?

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 proportionate operating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000). What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

Tyson is a 25 percent partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and land with a fair value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT Partnership interest is $24,000. What is Tyson's basis in the distributed inventory and land?

Riley is a 50 percent partner in the RF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Riley receives a proportionate operating distribution of $6,000 cash and a parcel of land with a $14,000 fair value and an $8,000 basis to RF. What is the amount and character of Riley's recognized gain or loss and what is his basis in his partnership interest?

Randolph is a 30 percent partner in the RD Partnership. On January 1, RD distributes $15,000 cash and inventory with a fair value of $20,000 (inside basis of $10,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in his RD Partnership interest is $27,000. What is the amount and character of Randolph's gain or loss on the distribution?

Scott is a 50 percent partner in the LS Partnership. Scott has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution. On December 31, Scott receives an operating distribution of $9,000 cash and a parcel of land with a $21,000 fair market value and a $12,000 basis to the partnership. LS has no debt or hot assets. What is the amount and character of Scott's recognized gain or loss? What is Scott's basis in the distributed property? What is Scott's ending basis in his partnership interest?

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

A partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

A §754 election is made by a distributee partner for a tax year in which (1) the distributee partner recognizes gain or loss on a distribution from a partnership or (2) the distributee partner's basis in distributed assets differs from the partnership's inside basis in those assets.

Tatia's basis in her TRQ Partnership interest is $33,000. Tatia receives a distribution of $22,000 cash from TRQ in complete liquidation of her interest. The three partners in TRQ share profits, losses, and capital equally. TRQ has the following balance sheet: a. What is the amount and character of Tatia's recognized gain or loss? What is the effect on the partnership assets? b. If TRQ has a §754 election in place, what is the amount and sign (positive or negative) of the special basis adjustment?

Daniela is a 25 percent 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 $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $20,000. What is Daniela's basis in the distributed inventory and accounts receivable?