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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 61

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Joan is a one-third partner in the PDJ Partnership. PDJ Partnership uses the proration method to allocate income and losses to partners with varying interests. On May 1, Joan sells her interest to Freddie for a cash payment of $103,400. On January 1, Joan's basis in PDJ is $81,900. PDJ generates $80,700 of ordinary income and $9,900 of tax-exempt income during the first four months of the year. PDJ has the following assets and no liabilities at the sale date: (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) What is the amount and character of Joan's gain or loss on the sale?

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Question 62

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At the end of last year, Cynthia, a 20percent partner in the five-person CYG partnership, has an outside basis of $27,500, including her $13,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $20,500 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?

A) $7,000 capital loss.
B) $7,000 ordinary loss.
C) $6,000 capital gain.
D) $7,500 ordinary income.

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

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Question 63

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Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $44,000. On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

Kathy is a 25percent 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?

Victor is a one-third partner in the VRX Partnership, with an outside basis of $166,900 on January 1. Victor sells his partnership interest to Raj on January 1 for $212,000 cash. The VRX Partnership has the following assets and no liabilities as of January 1: (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) The equipment was purchased for $345,000 and the partnership has taken $86,250 of depreciation. The stock was purchased seven years ago. What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

Daniel acquires a 30percent 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 what conditions will a partner recognize a gain in a liquidating 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 $50,200 basis in their partnership interests, including their share of partnership liabilities. On December 31, EE Partnership repays $58,400 of debt. What is the amount and character of Esther's recognized gain or loss? What is Esther's remaining basis in EE?

Jackson is a 30percent partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash. At the time of the sale, Jackson's basis in JJM is $64,000. JJM does not have any debt or hot assets. What is Jackson's gain or loss on the sale of his interest?

Martha is a 40percent 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.

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

Which of the following statements is false concerning partnership liquidating distributions?

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?

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

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

Marcella has a $65,000 basis in her 50percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a $40,000 basis to JM. What is Marcella's basis in the inventory and her remaining basis in JM after the distribution?

The SSC Partnership, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: Which of SSC's assets are considered hot assets under §751(a) ?

Joan is a 30percent 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?