Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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

A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts.

Cynthia sells her 1/3 interest in the CAR Partnership to Brandon for $95,000 cash. On the date of sale, the partnership balance sheet and agreed-upon fair market values were as follows: Adjusted Basis FMV Cash \ 40,000 \ 40,000 Receivables -0- 60,000 Land Total Cynthi a capital \ 30,000 \ 75,000 Arnold, capital 30,000 75,000 Ralph, capital 30,000 75,000 Total If the partnership has a § 754 election in effect, the total "step-up" in basis of partnership assets that will be allocated to Brandon is:

Tim and Darby are equal partners in the TD Partnership. Partnership income for the year is $60,000. Tim needs cash in order to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion. If the partners agree, it is acceptable for TD to distribute $8,000 to Tim, and no cash or other property to Darby.

A § 754 election is made for a tax year in which the partner recognizes gain or loss on a distribution from the partnership or the distributee partner's basis in distributed property is increased or decreased from the inside basis the partnership held in those assets. The election is made by the partnership each year in which it is necessary to adjust a partner's share of the inside basis of partnership assets. In a year in which an unfavorable result would arise, the partnership can forego making the election.

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:

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.

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000. His basis in his partnership interest was $15,000 immediately before the distribution. Carlos assigns a basis of $7,000 to the inventory, and recognizes no gain or loss.

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

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.

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.

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

On August 31 of the current tax year, the balance sheet of the RBD General Partnership is as follows: Adjusted Cash \ 150,000 \ 150,000 Receivables -0- 90,000 Capital assets 600,000 660,000 Total Nonrecourse debt \ 150,000 \ 150,000 Rachel, capital 200,000 250,000 Barry, capital 200,000 250,000 Dale, capital Total 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?

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

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

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

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 N may be used more than once. -Service providing partnership

The December 31, 2016, balance sheet of GST Services, LLP reads as follows: Adjusted Basis F M V Cash \ 300,000 \ 300,000 Receivables -0- 150,000 Capital assets Total George, capital \ 140,000 \ 200,000 Sue, capital 140,000 200,000 Tom, capital 140,000 200,000 Total The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership, and all partners are active in the business. On December 31, 2016, general partner Sue receives a distribution of $200,000 cash in liquidation of her partnership interest under § 736. Sue's outside basis for the partnership interest immediately before the distribution is $150,000. (Her basis does not correspond to her capital account because she purchased the interest a few years ago at a $10,000 premium.) How much is Sue's gain or loss on the distribution and what is its character?

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 $60,000 for a partner's share of unrealized receivables where the partner is a general partner, and most of the partnership's income is derived from services.