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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 31

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Hot assets include assets other than cash, capital assets, and §1231 assets.

A) True
B) False

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Question 32

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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.

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B) False

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Question 33

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

Doris owns a one-third 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's gain or loss on the distribution? What is her basis in the distributed assets?

Randolph is a 30percent 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?

Katrina is a one-third partner in the KYR Partnership (calendar year-end). Katrina decides she wants to exit the partnership and receives a proportionate distribution to liquidate her partnership interest on January 1. The partnership has no liabilities and holds the following assets as of January 1: Katrina receives one-third of each of the partnership assets. She has a basis in her partnership interest of $110,000. What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

Marty is a 40percent owner of MB Partnership. Marty has decided to sell his interest in the business to Emilio for $100,000 cash plus the assumption of his share of MB's liabilities. Assume Marty's inside and outside basis in MB are equal. MB shows the following balance sheet as of the sale date: What is the amount and character of Marty's recognized gain or loss?

Under what conditions will a partner recognize a gain in a liquidating distribution?

Nadine Fimple is a one-half partner in the NL Partnership with equal inside and outside bases. On January 1, NL distributes accounts receivable with a fair value of $100,000 to Nadine as an operating distribution. NL's balance sheet as of January 1 is as follows: What is the amount and character of Nadine's recognized gain or loss on the distribution?

At the end of last year, Cynthia, a 20percent 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?

Sarah is a 50percent 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?

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

Which of the following is true concerning a partner's basis in assets (other than money) distributed in an operating distribution?

Daniel's basis in the DAT Partnership is $131,500. DAT distributes its land to Daniel in complete liquidation of his partnership interest. DAT reports the following balance sheet just before the distribution: If DAT has a §754 election in place, what is the amount and sign (positive or negative) of the special basis adjustment resulting from the distribution to Daniel? What is DAT's basis in its remaining assets?

Shauna is a 50 percent partner in the SH Partnership. Shauna sells one-half of her interest to Kara for $60,000 cash. Just before the sale, Shauna's basis in her entire partnership interest is $150,000, including her $60,000 share of the partnership liabilities. SH's assets on the sale date are as follows: What is the amount and character of Shauna's gain or loss on the sale?

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 $46,300 basis in their partnership interests. On December 31, the partnership makes a pro rata operating distribution to Heidi of $47,000 cash. What is the amount and character of Heidi's recognized gain or loss? What is Heidi's remaining basis in HT?

Kathy is a 25percent partner in the KDP Partnership and receives a parcel of land with a fair value of $156,000 (inside basis of $112,000) in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $206,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. What is KDP's special basis adjustment from the distribution?

Ted is a 30percent 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.

Esther and Elizabeth are equal partners in the EE Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $40,000 basis in their partnership interests, including their share of partnership liabilities. On December 31, EE Partnership repays $50,000 of debt. What is the amount and character of Esther's recognized gain or loss? What is Esther's remaining basis in EE?

Tyson is a 25percent 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?