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Exam 15: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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The SSC Partnership balance sheet includes the following assets on December 31 of the current year: $\begin{array} { l r r } & \text { Basis } & { \text { FMV } } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\\text { Accourts receivable } & - 0 - & 60,000 \\\text { Equiprnerit (cost } = \$ 100,000 ) & 40,000 & 50,000 \\\text { Lardd } & \underline {90,000} & \underline {120,000} \\\text { Total }& \underline {\$ 310,000}& \underline {\$ 410,000}\end{array}$ Which of SSC's assets are considered hot assets under §751(a) ?

A) Cash and accounts receivable.
B) Cash and land.
C) Accounts receivable and land.
D) Accounts receivable and inherent recapture under §1245 in the equipment.

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

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Question 22

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Which of the following statements regarding hot assets for purposes of disproportionate distributions is false?

A) Hot assets include unrealized receivables.
B) Hot assets include any inventory.
C) Hot assets include substantially appreciated inventory.
D) The definition of hot assets for distributions and sales of partnership interests differs.

E) None of the above
F) B) and D)

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Question 23

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In the sale of a partnership interest,a selling partner will recognize ordinary income (rather than capital gain)when the partnership assets include cash and land held for 5 years as an investment.

The VRX Partnership (a calendar year-end entity)has the following assets and no liabilities: $\begin{array} { l r r r } & \text { Basis } & \text { FMV } \\\text { Cash } & \$ 27,000 & \$ 27,000 \\\text { Accourts receivable } & - 0 - & 18,000 \\\text { Inventory } & 103,500 & 121,500 \\\text { Equipment } & 270,000 & 337,500 \\\text { Stock irvestrnent } & \underline { 67,500} & \underline { 62,500} \\\text { Totals } & \underline { \$ 468,000 }& \underline { \$ 566,500}\end{array}$ The equipment was purchased for $360,000 and VRX has taken $90,000 of depreciation.The stock was purchased 7 years ago.What are VRX's hot assets for purposes of a sale of partnership interest?

A partner recognizes a loss when she receives cash and other property with inside bases greater than her outside basis in a liquidating distribution.

Tyson is a 25% 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?

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000.Just prior to the sale,Paul's outside and inside bases in KDP are $48,000.KDP's balance sheet includes the following: $\begin{array} { l r r } \text { Assets: } & \text { Basis } & \text { FMV } \\\text { Cash } & \$ 48,000 & \$ 48,000 \\\text { Land held for irvestrnent } & 96,000 & 132,000\end{array}$ $\begin{array}{l}\text { Liabilities ard Capital: }\\\begin{array} { l l l } \text { Capital } & \text { Paul } & 48,000 \\& \text { Kristi } & 48,000 \\& \text { David } & 48,000\end{array}\end{array}$ If KDP has a §754 election in place,what is Kathy's special basis adjustment?

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.

Catherine is a 30% partner in the ACW Partnership with an outside basis of $20,000.ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest.Catherine recognizes a capital loss of $2,000 on the distribution.

Jaime has a basis in her partnership interest of $50,000 when the partnership distributes (in an operating distribution)two parcels of land to Jaime,each valued at $30,000.Prior to the distribution,the partnership's basis in parcel A is $40,000 and the basis in parcel B is $20,000.Jaime allocates $20,000 of basis to parcel A and $30,000 of basis to parcel B.

Tyson is a 25% 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?

A partner that receives cash in an operating distribution recognizes loss if the cash distributed is less than the partner's outside basis in the partnership immediately before the distribution.

Joan is a 30% partner in the OJT Partnership when she sells her entire interest to Crissy for $100,000 cash.At the time of the sale,Joan's basis in OJT is $63,000 (which includes her $10,000 share of OJT liabilities).OJT does not have any hot assets.What is the amount and character of Joan's gain or loss on the sale?

When a partner receives more than a proportionate share of hot assets in a distribution,the transaction is treated as though the partnership distributes a proportionate share of cold assets to the partner and then the partner sells some or all those cold assets back to the partnership at fair market value in exchange for a portion of the hot assets actually received in the distribution.

Federico is a 30% partner in the FRM Partnership when he sells his entire interest to Maria for $98,000.At the time of the sale,Federico's basis in FRM is $74,000.FRM does not have any debt.In addition,FRM's assets include accounts receivable with zero tax basis and $21,000 fair market value at the date of the sale.The remaining assets of the partnership are capital and §1231assets.Federico will recognize ordinary income of $24,000 on the sale of his partnership interest.

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?

Randolph is a 30% 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?

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

Lola is a 35% 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 $30,000.What is the amount and character of Lola's gain or loss?

Which of the following statements regarding liquidating distributions is true?