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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.

A) True
B) False

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


A) Partners will never recognize a gain on an operating distribution.
B) Partners receiving a distribution of property other than money will take a basis in the property equal to its fair market value.
C) Partners will never recognize a loss on an operating distribution.
D) None of the statements are true.

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

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The SSC, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: The SSC, a cash-method partnership, has a balance sheet that 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 $100,000 cash, what is the amount and character of Susan's gain or loss from the sale? A) $10,000 capital gain. B) $10,000 ordinary income. C) $20,000 ordinary income; $10,000 capital gain. D) $10,000 capital loss; $20,000 ordinary income. 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 $100,000 cash, what is the amount and character of Susan's gain or loss from the sale?


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

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

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Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $25,000 cash, inventory with a $17,400 fair value (inside basis $8,700) , and accounts receivable with a fair value of $8,700 (inside basis of $13,050) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $28,050. What is Daniela's basis in the distributed inventory and accounts receivable?


A) $1,525 inventory, $1,525 accounts receivable.
B) $8,700 inventory, $13,050 accounts receivable.
C) $0 inventory, $4,350 accounts receivable.
D) $17,400 inventory, $8,700 accounts receivable.

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

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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 $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?


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

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

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

A) True
B) False

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Under what conditions will a partner recognize a gain in a liquidating distribution?


A) When a partnership distributes only money and the amount of the distribution exceeds the partner's outside basis.
B) When a partnership distributes only money and the amount of the distribution is less than the partner's outside basis.
C) When a partnership distributes money, hot assets, and other property and the amount of the distribution exceeds the partner's outside basis.
D) When a partnership distributes money, hot assets, and other property and the amount of the distribution is less than the partner's outside basis.

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

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In the sale of a partnership interest, a selling partner will recognize ordinary income (rather than capital gain) when the partnership assets include cash and land held for five years as an investment.

A) True
B) False

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Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) 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 the amount and character of Daniela's gain or loss from the distribution?


A) $0.
B) $14,000 ordinary income.
C) $4,000 capital loss.
D) $4,000 capital gain.

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

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Randolph is a 30percent 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 is $37,000. What is Randolph's basis in the distributed inventory and land?


A) $10,000 inventory, $10,000 land.
B) $10,000 inventory, $5,000 land.
C) $20,000 inventory, $10,000 land.
D) $10,000 inventory, $12,000 land.

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

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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 $33,000. On December 31, KH makes a proportionate operating distribution of $43,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?


A) $0 gain, $0 basis.
B) $10,000 capital gain, $0 basis.
C) $10,000 capital loss, $0 basis.
D) $10,000 capital gain, $33,000 basis.

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

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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?


A) $80,000 inventory basis, $0 JM basis.
B) $40,000 inventory basis, $0 JM basis.
C) $40,000 inventory basis, $15,000 JM basis.
D) $80,000 inventory basis, $15,000 JM basis.

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

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Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 in cash to Barry. As a result of the distribution, Barry reduces his basis in the partnership interest to $0, has a $60,000 basis in the cash received, and recognizes a gain of $10,000 on the distribution.

A) True
B) False

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Lola is a 35percent 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 $30,000. What is the amount and character of Lola's gain or loss?

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$9,000 capital gain. Lola's ga...

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Which of the following statements regarding liquidating distributions is true?


A) A partner will recognize a gain when the partnership distributes only money and the amount is greater than the partner's outside basis.
B) A partner will recognize a gain when the partnership distributes only money and hot assets and the inside bases of the distributed assets are greater than the partner's outside basis.
C) A partner will recognize a gain when the partnership distributes money, hot assets, and other property and the inside bases of the distributed assets are greater than the partner's outside basis.
D) A partner will recognize a gain when the partnership distributes only money and the amount is less than the partner's outside basis.

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

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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 $23,000, including her $8,500 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $16,000 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) $1,500 capital gain.
D) $7,500 ordinary income.

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

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Kathy is a 25percent partner in the KDP Partnership and receives $129,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $151,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. Which of the following statements is true?


A) KDP will increase the basis of its assets by $22,000 and Kathy will recognize a $22,000 loss on the distribution.
B) KDP will increase the basis of its assets by $22,000 and Kathy will recognize a $22,000 gain on the distribution.
C) KDP will decrease the basis of its assets by $22,000 and Kathy will recognize a $22,000 loss on the distribution.
D) KDP will decrease the basis of its assets by $22,000 and Kathy will recognize a $22,000 gain on the distribution.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
84) 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 $75,000. On January 1, Joan's basis in PDJ is $57,000. PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt income during the first four months of the year. PDJ has the following assets and no liabilities at the sale date:
Kathy is a 25percent partner in the KDP Partnership and receives $129,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $151,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. Which of the following statements is true? A) KDP will increase the basis of its assets by $22,000 and Kathy will recognize a $22,000 loss on the distribution. B) KDP will increase the basis of its assets by $22,000 and Kathy will recognize a $22,000 gain on the distribution. C) KDP will decrease the basis of its assets by $22,000 and Kathy will recognize a $22,000 loss on the distribution. D) KDP will decrease the basis of its assets by $22,000 and Kathy will recognize a $22,000 gain on the distribution. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 84) 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 $75,000. On January 1, Joan's basis in PDJ is $57,000. PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt income during the first four months of the year. PDJ has the following assets and no liabilities at the sale date: What is the amount and character of Joan's gain or loss on the sale? What is the amount and character of Joan's gain or loss on the sale?

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

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The PW Partnership's balance sheet includes the following assets immediately before it liquidates: The PW Partnership's balance sheet includes the following assets immediately before it liquidates: 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? A) $0. B) $5,000 capital gain. C) $5,000 ordinary income. D) $2,500 capital gain and $2,500 ordinary income. 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?


A) $0.
B) $5,000 capital gain.
C) $5,000 ordinary income.
D) $2,500 capital gain and $2,500 ordinary income.

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

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The PW Partnership';s balance sheet includes the following assets immediately before it liquidates: The PW Partnership';s balance sheet includes the following assets immediately before it liquidates: 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? A) $0. B) $5,000 capital gain. C) $5,000 ordinary income. D) $2,500 capital gain and $2,500 ordinary income. 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?


A) $0.
B) $5,000 capital gain.
C) $5,000 ordinary income.
D) $2,500 capital gain and $2,500 ordinary income.

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

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Catherine is a 30percent 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.

A) True
B) False

Correct Answer

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