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Exam 15: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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Victor is a 1/3 partner in the VRX partnership with an outside basis of $156,000 on January 1.Victor sells his partnership interest to Raj on January 1ˢᵗ for $200,000 cash.The VRX Partnership has the following assets and no liabilities as of January 1: $\begin{array} { l r r r } & \text { Basis } & \text { FMV } \\\text { Cash } & \$ 27,000 & \$ 27,000 \\\text { Accourts receivable } & - 0 - & 18,000 \\\text { Inventory } & 103,500 & 121,500 \\\text { Equipment } & 270,000 & 337,500 \\\text { Stock irvestrnent } & \underline { 67,500} & \underline { 96,000 }\\\text { Totals } & \underline { \$ 468,000 }& \underline { \$ 600,000}\end{array}$ The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation.The stock was purchased 7 years ago.What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

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$9,500 capital gain and $34,500 ordinary...

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Question 42

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The SSC Partnership balance sheet includes the following assets on December 31 of the current year: $\begin{array} { l r r } &{ \text { Basis } } & \text { FMV } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\\text { Accourts receivable } & - 0 - & 60,000 \\ \text { Lard } & \underline {90,000} & \underline {120,000} \\\text { Total } & \underline {\$ 270,000} & \underline {\$ 360,000}\end{array}$ Susan,a 1/3 partner,has an adjusted basis of $90,000 for her partnership interest.If Susan sells her entire partnership interest to Emma for $120,000 cash,how much capital gain and ordinary income must Susan recognize from the sale?

A) $30,000 ordinary income.
B) $30,000 capital gain.
C) $10,000 ordinary income; $20,000 capital gain.
D) $10,000 capital gain; $20,000 ordinary income.

E) All of the above
F) None of the above

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Question 43

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When determining a partner's gain on sale of his partnership interest,the selling partner must include her share of partnership debt in the amount realized.

Inventory is substantially appreciated if the fair market value of all inventory items exceeds 100% of their basis to the partnership.

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.

Nadine Fimple is a one-third partner in the NWL Partnership with equal inside and outside bases.On January 1,NWL distributes $100,000 to Nadine in complete liquidation of her FPL interest.NWL's balance sheet as of January 1 is as follows: $\begin{array}{rr}\text { Basis } & \text { FMV } \\\text { Cash}&\$ 120,000 & \$ 120,000 \\\text { Inventory}&60,000 & 180,000 \\\hline \text { Total}&\$ 180,000 & \$ 300,000\end{array}$     $\begin{array}{l}\begin{array}{l}\text { Nadine, capital } \\\text { Wendell, capit } \\\text { Louis, capital } \\\text { Total }\end{array}\begin{array}{r}\$ \quad 60,000 \\60,000 \\60,000 \\\hline \$ \quad 180,000 \\\hline\end{array}\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Riley is a 50% 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 Riley's basis in the distributed property?

Martha is a 40% partner in the MMM Partnership with an outside basis of $50,000.MMM distributes $40,000 cash and accrual basis accounts receivable with a basis and fair market value of $20,000.Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

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

Randolph is a 30% partner in the RD Partnership.On January 1,RD distributes $15,000 cash,inventory 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 his is $37,000.What is Randolph's basis in the distributed inventory and land?

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

Daniel acquires a 30% interest in the PPZ Partnership from Paolo,an existing partner for $39,000 of cash.The PPZ Partnership has borrowed $10,000 of recourse liabilities as of the date Daniel bought the interest.What is Daniel's basis in his partnership interest?

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

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{lrr}\text { Basis } & \text { FMV } \\\text {Cash}&\$ 10,000 & \$ 10,000 \\\text {Unrealized receivables}&\underline { -0- }& \underline { 10,000 }\\\text {Total}&\underline { \$ 10,000}&\underline { \$ 20,000}\end{array}$ In complete liquidation,PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners) .Pamela and Wade each have an outside basis in PW equal to $5,000.PW has no liabilities at the time of the liquidation.What is the amount and character of Pamela's recognized gain or loss?

Which of the following statements regarding disproportionate distributions is false?

Tyson,a one-quarter partner in the TF Partnership,receives a proportionate distribution of $70,000 to liquidate his partnership interest on January 1.Tyson's outside basis is $75,000 including his $10,000 share of TF's liabilities.TF does not hold any hot assets.What is the amount and character of Tyson's recognized gain or loss?

In an operating distribution,when a partnership distributes property other than money with a basis that exceeds the partner's outside basis,the partner assigns a carryover basis to the distributed asset and recognizes a gain.

Carmello is a one-third partner in the CDW Partnership with equal inside and outside bases.On December 31,Carmello sells his interest to Conrad for $100,000 cash.CDW makes a §754 election and its balance sheet as of December 31 is as follows:   $\begin{array}{rrrr}\begin{array}{lll}\\\text {Cash}\\\text {Capital asset (non-depreciable)}\\\text {Total}\\\\\text {Carmello, capital}\\\text {Doug, capital}\\\text {Wendy, capital}\\\text {Total}\\\end{array}\begin{array}{lll}\text { Basis } & \text { FMV } \\60,000 &60,000 \\\underline { 120,000}&\underline { 240,000}\\\underline { \$ 180,000 }& \underline { \$300,000 }\\\\\$ \quad 60,000 \\60,000 \\\underline { 60,000 }\\\underline { \$ \quad 180,000}\\\end{array}\end{array}$ What is the amount and sign (positive or negative)of Conrad's special basis adjustment? If CDW sells the capital asset next year for $300,000,what is the amount of gain Conrad will recognize because of the sale?

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: $\begin{array}{l}\begin{array}{lll}\\\text { Cash} \\\text { Account receivable} \\\text { Total} \\\\\text { Nadine, capital} \\\text { Louis, capital} \\\text { Total} \\\end{array}\begin{array}{lll}\text { Basis } & \text { FMV } \\\$ 100,000 & \$ 100,000 \\-0- &\$ 100,000 \\\underline{ \$ 100,000}& \underline { \$ 200,000} \\\\\$ \quad 50,000 \\\underline{ 50,000 }\\ \underline { \$ \quad 100,000}\end{array}\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Zayde is a 1/3 partner in the ARZ partnership with an outside basis of $156,000 on January 1.Zayde sells his partnership interest to Thomas on January 1ˢᵗ for $180,000 cash.The ARZ Partnership has the following assets and no liabilities as of January 1: $\begin{array} { l r r r } & \text { Basis } & \text { FMV } \\\text { Cash } & \$ 27,000 & \$ 27,000 \\\text { Accourts receivable } & - 0 - & 18,000 \\\text { Inventory } & 103,500 & 121,500 \\\text { Equipment } & 270,000 & 337,500 \\\text { Stock irvestrnent } & \underline { 67,500} & \underline { 96,000 }\\\text { Totals } & \underline { \$ 468,000 }& \underline { \$ 600,000}\end{array}$ The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation.The stock was purchased 3 years ago.What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?