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

Nicky's basis in her partnership interest was $150,000, including her $40,000 share of partnership liabilities. The partnership decides to liquidate, and after repaying all liabilities, distributes all remaining assets proportionately to the partners. Nicky receives $30,000 cash and accounts receivable with a $50,000 basis and a $48,000 fair market value to the partnership. What gain or loss does Nicky recognize, and what is her basis in the accounts receivable?

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

Loss cannot be recognized on a distribution from a partnership unless cash, unrealized receivables and/or § 1231 assets are the only items distributed.

Generally, a distribution of property does not result in gain to a partner on either a current or liquidating distribution. A situation where a gain may arise, however, is when a partner contributed appreciated property to the partnership and that property is distributed back to the contributing partner within seven years of the contribution.

Brittany, Jennifer, and Daniel are equal partners in the BJD Partnership. The partnership balance sheet reads as follows on December 31 of the current year. Partner Daniel has an adjusted basis of $40,000 for his partnership interest. If Daniel sells his entire partnership interest to new partner Amber for $73,000 cash, how much can the partnership step-up the basis of Amber's share of partnership assets under §§ 754 and 743(b)?

Which of the following statements correctly reflects one of the rules regarding proportionate liquidating distributions?

Generally, no gain is recognized on a proportionate liquidating or nonliquidating distribution of non-cash property even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Nick sells his 25% interest in the LMNO Partnership to new partner Katrina for $57,500. The partnership's assets consist of cash ($100,000), land (basis of $90,000, fair market value of $70,000), and inventory (basis of $40,000, fair market value of $60,000). Nick's basis in his partnership interest was $57,500. On the sale, Nick will recognize ordinary income of $5,000 and a capital loss of $5,000.

Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $20,000, fair market value of $30,000) to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:

The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership also liquidated: $25,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $5,000, fair market value of $15,000). James's basis in his partnership interest was $85,000 immediately before the distribution. James will allocate bases of $40,000 to parcel A and $20,000 to parcel B, and he will have no remaining basis in his partnership interest.

A partnership is required to make a downward adjustment to the basis of its assets if a partnership interest is sold and if the total basis of partnership assets exceeds their value by more than $250,000, even if a § 754 election is not in effect.

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

Which of the following statements, if any, about a multi-member LLC is false?

Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate nonliquidating distribution consisting of land held for investment with a basis to CAR of $40,000 (value of $60,000), and inventory with a basis of $40,000 (value of $40,000). After the distribution, Catherine's bases in the land and inventory are:

The December 31, 2014, balance sheet of the BCD LLP reads as follows. Each partner shares in 1/3 of the partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership. On December 31, 2014, general partner Christina receives a distribution of $140,000 cash in liquidation of her partnership interest under § 736. Nothing is stated in the partnership agreement about goodwill. Christina's outside basis for the partnership interest immediately before the distribution is $84,000. How much is Christina's recognized gain from the distribution and what is the character of the gain?

Taylor's basis in his partnership interest is $140,000, including his $60,000 share of partnership debt. Sandy buys Taylor's partnership interest for $100,000 cash and she assumes Taylor's $60,000 share of the partnership's debt. If the partnership owns no hot assets, Taylor will recognize a capital loss of $40,000.

In a proportionate liquidating distribution, Sam receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $50,000), and land (basis of $20,000, fair market value of $50,000). In addition, the partnership repays all liabilities, of which Sam's share was $40,000. Sam's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sam's basis in the accounts receivable and land, and how much gain or loss does he recognize?

Which of the following distributions would never result in gain recognition to the recipient partner?

In a liquidating distribution, a partnership must distribute all of its property to all of its partners.

Which of the following statements about the transfer of a partnership interest is not true?