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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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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.

A) True
B) False

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Question 42

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

A) A partner's bases in the distributed assets will be greater than the partnership's bases in the assets.
B) A partner's bases in the distributed assets will be equal to the partnership's bases in the assets.
C) A partner's bases in the distributed assets will be less than or equal to the partnership's bases in the assets.
D) None of the statements are true.

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

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Question 43

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Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $20,000. What is Daniela's basis in the distributed inventory and accounts receivable?

Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate, liquidating distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $20,000. What is the amount and character of Daniela's gain or loss from the distribution?

Jenny has a $80,100 basis in her 50 percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Jenny of a parcel of land with an $108,000 fair value and a $87,100 basis to JM. The land is encumbered with a $41,550 mortgage (JM's only liability) . What is Jenny's basis in the land and her remaining basis in JM after the distribution?

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.

In which type of distribution may a partner recognize a loss on the distribution?

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 allof 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.

A partner recognizes gain when she receives cash in excess of her outside basis 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 $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?

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.

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.

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

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?

Daniel acquires a 30percent interest in the PPZ Partnership from Paolo, an existing partner, for $49,000 of cash. The PPZ Partnership has borrowed $20,000 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

Jenny has a $54,000 basis in her 50percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Jenny of a parcel of land with an $80,000 fair value and a $64,000 basis to JM. The land is encumbered with a $30,000 mortgage (JM's only liability) . What is Jenny's basis in the land and her remaining basis in JM after the distribution?

Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $0) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $21,000. What is Daniela's basis in the distributed inventory and accounts receivable?

The SSC, a cash-method partnership, has a balance sheetthat includes the following assets on December 31 of the current year: Susan, a one-third 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?

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: If KDP has a §754 election in place, what is Kathy's special basis adjustment?

A partner will recognize a loss from a liquidating distribution when the distribution includes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets.