Exam 11: Partnerships: Distributions, Transfer of Interests, and Terminations

Jonathon owns a one-third interest in a liquidating partnership. Immediately before the liquidation, Jonathon's basis in the partnership interest is $60,000. The partnership distributes cash of $32,000 and two parcels of land (each with a fair market value of $10,000). Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000. Jonathon's basis in the two parcels of land is:

Jeremy is an active partner who owns a 30% interest in the JS LLP (in which capital is not a material income-producing factor). Partnership assets consist of land (fair market value of $200,000, basis of $140,000), accounts receivable (fair market value of $200,000, basis of $0), and cash of $400,000. JS distributes $220,000 of the cash to Jeremy in liquidation of his interest. In addition, Jeremy is relieved of his $40,000 share of the LLP's liabilities. The total payment includes $20,000 for Jeremy's share of JS goodwill (for which the agreement does not provide). Jeremy's basis in the partnership interest (including his share of the partnership's liabilities) is $120,000 immediately before the distribution. How much gain or loss does Jeremy recognize and what is its character? How much can the partnership deduct?

Marcie is a 40% member of the M&A LLC. Her basis is $10,000 immediately before the LLC distributes to her $30,000 of cash and land (basis to the LLC of $20,000 and fair market value of $25,000). As a result of the proportionate, nonliquidating distribution, Marcie recognizes a gain of $20,000 and her basis in the land is $0.

A partnership has accounts receivable with a basis of $0 and a fair market value of $30,000 and depreciation recapture potential of $20,000. All other assets of the partnership are either cash, capital assets, or § 1231 assets. If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner will be required to recognize ordinary income of $12,000.

Match the following independent descriptions as "hot" (i.e., ordinary income) or nonhot assets with the statements below -Installment receivables for sale of a capital asset.

Suzy owns a 30% interest in the JSD LLC. In liquidation of the entity, Suzy receives a proportionate distribution of $30,000 cash, inventory (basis of $16,000, fair market value of $18,000), and land (basis of $25,000, fair market value of $30,000). Suzy's basis in the entity immediately before the distribution was $80,000. As a result of the distribution, what is Suzy's basis in the inventory and land, and how much gain or loss does she recognize?

On August 31 of the current tax year, the balance sheet of the RBD General Partnership is as follows: On that date, Rachel sells her one-third partnership interest to Lisa for $300,000, including cash and relief of Rachel's share of the nonrecourse debt. The nonrecourse debt is shared equally among the partners. Rachel's outside basis for her partnership interest is $250,000 (including her share of partnership debt). How much capital gain and/or ordinary income will Rachel recognize on the sale?

Anthony's basis in the WAM Partnership interest was $200,000 just before he received a proportionate liquidating distribution consisting of investment land (basis of $90,000, fair market value of $100,000), and inventory (basis of $30,000, fair market value of $70,000). After the distribution, Anthony's recognized gain or loss and his basis in the land and inventory are:

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below -Distribution of cash of $10,000 to a general partner for goodwill, where goodwill is provided for in the partnership agreement, and the partnership derives most of its income from services.

Lori, a partner in the JKL partnership, received a proportionate nonliquidating distribution of $10,000 cash, unrealized receivables with a basis of $0 and a fair market value of $15,000, and land with a basis of $6,000 and a fair market value of $10,000. Her basis in the partnership interest immediately before the distributions was $14,000. She will recognize $0 gain on the distribution, and her basis in the receivables and land will be $0 and $4,000, respectively.

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property (adjusted basis to the partnership of $10,000 and fair market value of $12,000). The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below -Distribution of cash of $25,000 for a partner's share of substantially appreciated inventory.

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once -Hot assets

Match the following independent descriptions as "hot" (i.e., ordinary income) or nonhot assets with the statements below -Marketable securities (not held as inventory).

Match the following statements with the best match from the choices below. Note: Choice N may be used more than once -Unstated goodwill

In a proportionate nonliquidating distribution, cash is deemed to be distributed first, followed by capital and § 1231 assets, and last, unrealized receivables and inventory.

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

Match the following statements with the best match from the choices below. Note: Choice N may be used more than once -Step down

The December 31, 2014, balance sheet of the RST General Partnership reads as follows. The partners share equally in partnership capital, income, gain, loss, deduction and credit. Ted's adjusted basis for his partnership interest is $40,000. On December 31, 2014, he retires from the partnership, receiving a $60,000 cash payment in liquidation of his interest. The partnership agreement states that $2,500 of the payment is for goodwill. Which of the following statements about this distribution is false?

Zach's partnership interest basis is $100,000. Zach receives a proportionate, liquidating distribution from a liquidating partnership of $50,000 cash and inventory having a basis of $20,000 to the partnership and a fair market value of $30,000. Zach assigns a basis of $20,000 to the inventory and recognizes a $30,000 loss.