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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 1

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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 the amount and character of Riley's recognized gain or loss and what is his basis in his partnership interest?

A) $0 gain, $36,000 basis
B) $0 gain, $42,000 basis
C) $0 gain, $50,000 basis
D) $0 gain, $56,000 basis

E) All of the above
F) A) and D)

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Question 2

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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 1^st for $200,000 cash. The VRX Partnership has the following assets and no liabilities as of January 1: $\begin{array} { | l | r | r | } \hline \text { Assets: } & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 160,000 & \$ 160,000 \\\hline \text { Receivables } & 50,000 & 50,000 \\\hline \text { Inventory } & 80,000 & 170,000 \\\hline \text { Land held for investment } & 60,000 & 40,000 \\\hline \text { Total } & \$ 350,000 & \$ 420,000 \\\hline\end{array}$ 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 3

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

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: $\begin{array}{l}\text { Liablities and capital: }\\\begin{array} { | c | r | } \hline \text { Capital-Daniel } & \$ 135,000 \\\hline \text {-Alexandra } & 135,000 \\\hline \text {-Travis } & 135,000 \\\hline \text { Total } & \$ 405,000 \\\hline\end{array}\end{array}$ $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 180,000 & \$ 180,000 \\\hline \text { Accounts receivable } & - 0 - & 60,000 \\\hline \text { Land } & 90,000 & 120,000 \\\hline \text { Total } & \$ 270,000 & \$ 360,000 \\\hline\end{array}$ What is the amount 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?

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?

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

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.

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: $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 100,000 & \$ 100,000 \\\hline \text { Account receivable } & - 0 & 100,000 \\\hline \text { Total } & \$ 100,000 & \$ 200,000 \\\hline\end{array}$ 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?

Shauna is a 50% 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: $\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 80,000 & \$ 80,000 \\\hline \text { Inventory } & 60,000 & 180,000 \\\hline \text { Land held for investment } & \underline { 160,000 } & \underline { 100,000 } \\\hline \text { Total } & \$ 300,000 & \$ 360,000 \\\hline\end{array}$ What is the amount and character of Shauna's gain or loss on the sale?

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: $\begin{array} { | l | r | } \hline \text { Carmello, capital } & \$ 60,000 \\\hline \text { Doug, capital } & 60,000 \\\hline \text { Wenchy, capital } & 60,000 \\\hline \text { Total } & \$ 180,000 \\\hline\end{array}$ $\begin{array} { | l | r | r | } \hline \text { Assets: } & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 22,000 & \$ 22,000 \\\hline \text { Stock (imvestment) } & 11,000 & 22,000 \\\hline \text { Land } & \underline { 66,000 } & \underline { 22,000 } \\\hline \text { Total } & \$ 99,000 & \$ 66,000 \\\hline\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Cash distributions include decreases in a partner's share of partnership liabilities.

Which of the following statements regarding the sale of a partnership interest is false?

Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a liquidating distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $20,000. What is the amount and character of Tyson's gain or loss from the distribution?

Brian is a 25% partner in the BC Partnership. On January 1, BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000) to Brian. BC has no liabilities at the date of the distribution. Brian's basis in BC is $16,000. What is the amount and character of Brian's gain or loss on the distribution?

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array} { | l | l | r | } \hline \text { Liabilities and Capital: } & & \\\hline \text { Capital } & \text { Paul } & 48,000 \\\hline & \text { Kristi } & 48,000 \\\hline & \text { David } & 48,000 \\\hline\end{array}$ 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 Wade's recognized 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 pro-rata operating distribution to Heidi of $60,000 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 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $160,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. Which of the following statements is true?

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

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 $50,000. What is the amount and character of Lola's gain or loss?

A partner recognizes gain when he receives cash in excess of his outside basis in a liquidating distribution.