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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 1

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

A) Partners may either increase or decrease the basis in inventory distributed in a liquidating distribution.
B) Partners may only increase the basis in inventory distributed in a liquidating distribution.
C) Partners may only decrease the basis in inventory distributed in a liquidating distribution.
D) None of these statements are true.

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

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Question 2

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Doris owns a one-third capital and profits interest in the calendar-year DB Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $20,000. On that date, she receives an operating distribution of her share of partnership assets shown below: What is the amount and character of Doris's gain or loss on the distribution? What is her basis in the distributed assets?

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$7,000 capital gain. Her basis in the ca...

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Question 3

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Kathy is a 25percent partner in the KDP Partnership and receives a parcel of land with a fair value of $156,000 (inside basis of $112,000) in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $206,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. What is KDP's special basis adjustment from the distribution?

Jessica is a 25percent partner in the JRL Partnership. On January 1, JRL distributes $40,000 cash to Jessica. JRL has no hot assets or liabilities at the date of the distribution. Jessica's basis in her JRL partnership interest is $28,000. What is the amount and character of Jessica's gain or loss from the distribution?

Tyson is a 25percent partner in the KT Partnership. On January 1, KT makes a proportionate 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 his KT Partnership interest is $20,000. What is Tyson's basis in the distributed land?

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 proportionate operating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000). What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

Tyson is a 25percent 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?

Randolph is a 30percent partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment 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 is $48,000. What is Randolph's basis in the distributed investment and land?

Operating distributions completely terminate a partner's interest in the partnership.

Randolph is a 30percent 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?

Ted is a 30percent partner in the TDW Partnership, with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

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?

A partner that receives cash in an operating distribution recognizes gain if the cash distributed exceeds the partner's outside basis in the partnership immediately before the distribution.

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

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: What is the amount and character of Nadine's recognized gain or loss on the distribution?

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?

A partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

Sarah is a 50percent partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Sarah receives a proportionate operating distribution of $20,000 cash. What is the amount and character of Sarah's recognized gain or loss and what is her basis in her partnership interest?

Hot assets include assets other than cash, capital assets, and §1231 assets.

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?