Question 1

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

Accepted Answer

A) A distribution of cash that follows a contribution of appreciated property to the partnership. 
B) A distribution of a slightly appreciated marketable security. 
C) A distribution of property to a partner who, three years ago, contributed other property with a built-in gain. 
D) A distribution to a second partner of property contributed by the first partner two years ago. 
E) A proportionate distribution of inventory property. 
A) A distribution of cash that follows a contribution of appreciated property to the partnership. 
B) A distribution of a slightly appreciated marketable security. 
C) A distribution of property to a partner who, three years ago, contributed other property with a built-in gain. 
D) A distribution to a second partner of property contributed by the first partner two years ago. 
E) A proportionate distribution of inventory property.

Question 2

Hannah sells her 25% interest in the HIJK Partnership to Alyssa for $120,000 cash. At the end of the year prior to the sale, Hannah's basis in HIJK was $70,000. The partnership allocates $15,000 of income to Hannah for the portion of the year she was a partner. On the date of the sale, the partnership assets and the agreed fair market values were as follows. $\begin{array}{lrr}
& \text { Adjusted } \
& \underline { \text { Basis } } & \underline { \text { FMV } } \
\text { Cash } & \$ 100,000 & \$ 100,000 \
\text { Accounts Receivable } & -0- & 80,000 \
\text { Land } & 240,000 & 220,000 \
\text { Total } & \$ 340,000 & \$ 400,000
\end{array}$ Determine the amount and character of any gain that Hannah recognizes on the sale.

Accepted Answer

Hannah's basis is increased from $70,000

Question 3

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:

Accepted Answer

A) $80,000 loss; $90,000 (land); $30,000 (inventory). 
B) $70,000 loss; $100,000 (land); $30,000 (inventory). 
C) $30,000 loss; $100,000 (land); $70,000 (inventory). 
D) $0 gain or loss; $170,000 (land); $30,000 (inventory). 
E) None of the above. 
A) $80,000 loss; $90,000 (land); $30,000 (inventory). 
B) $70,000 loss; $100,000 (land); $30,000 (inventory). 
C) $30,000 loss; $100,000 (land); $70,000 (inventory). 
D) $0 gain or loss; $170,000 (land); $30,000 (inventory). 
E) None of the above.

Question 4

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:

Accepted Answer

A) No gain or loss. 
B) Ordinary loss of $5,000. 
C) Capital loss of $5,000. 
D) Ordinary gain of $5,000. 
E) Capital gain of $5,000. 
A) No gain or loss. 
B) Ordinary loss of $5,000. 
C) Capital loss of $5,000. 
D) Ordinary gain of $5,000. 
E) Capital gain of $5,000.

Question 5

Susan is a one-fourth limited partner in the SJ Partnership in which capital is not a material income-producing factor. Partnership assets consist of land (fair market value of $100,000, basis of $80,000), accounts receivable (fair market value of $100,000, basis of $0) and cash of $200,000. SJ distributes $100,000 of the cash to Susan in liquidation of her interest. Susan's basis in the partnership interest was $70,000 immediately before the distribution. How much gain or loss does Susan recognize and what is its character? How much can the partnership deduct?

Accepted Answer

Susan recognizes $25,000 of ordinary inc

Question 6

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. $\begin{array}{lrr}
&\text { Adjusted } \
&\text { Basis }
&\text { F M V } \ 
\text { Cash } & \$ 75,000 & \$ 75,000 \
\text { Unrealized receivables } & -0- & 51,000 \
\text { Land } & \underline{45,000} & \underline{63,000} \
\text { Total } & \$ \mathbf{1 2 0 , 0 0 0} & \mathbf{\$ 1 8 9 , 0 0 0}\
\
\text { Brittany, capital } & \$ 40,000&\$63,000 \
\text { Jennifer, capital } & 40,000&63,000 \
\text { Daniel, capital } & 40,000&63,000 \
\text { Total } & \mathbf{\$ 1 2 0 , 0 0 0} & \mathbf{189,000}\
\end{array}$
 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)?

Accepted Answer

A) $6,000 
B) $17,000 
C) $23,000 
D) $33,000 
E) None of the above 
A) $6,000 
B) $17,000 
C) $23,000 
D) $33,000 
E) None of the above

Question 7

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

Accepted Answer

A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided. 
A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided.

Question 8

The BLM LLC's balance sheet on August 31 of the current year is as follows. $\begin{array}{lrr}
&\text { Adjusted } \
&\text { Basis }
&\text { F M V } \ 
\text { Cash } & \$ 60,000 & \$ 60,000 \
\text { Receivables } & -0- & 150,000 \
\text { Capital assets } & 90,000 & 300,000 \
& \underline{\mathbf{\$ 1 5 0 , 0 0 0}} &\underline{ \mathbf{\$ 5 1 0 , 0 0 0}} \
\
\text { Nonrecourse debt } & \$ 90,000 & \$ 90,000 \
\text { Barney, capital } & 20,000 & 140,000 \
\text { Lillie, capital } & 20,000 & 140,000 \
\text { Marshall, capital } & 20,000 & \underline{140,000} \
& \mathbf{\$ 1 5 0 , 0 0 0} & \mathbf{\$ 5 1 0 , 0 0 0}
\end{array}$
 The nonrecourse debt is shared equally among the LLC members. On that date, Lillie sells her one-third interest to Robyn for $170,000, including cash and relief of Lillie's share of the nonrecourse debt. Lillie's outside basis for her interest in the LLC is $50,000, including her share of the LLC's debt. How much capital gain and/or ordinary income will Lillie recognize on the sale?

Accepted Answer

A) $100,000 capital gain; $50,000 ordinary income. 
B) $120,000 capital gain; $0 ordinary income. 
C) $150,000 capital gain; $0 ordinary income. 
D) $70,000 capital gain; $50,000 ordinary income. 
E) None of the above. 
A) $100,000 capital gain; $50,000 ordinary income. 
B) $120,000 capital gain; $0 ordinary income. 
C) $150,000 capital gain; $0 ordinary income. 
D) $70,000 capital gain; $50,000 ordinary income. 
E) None of the above.

Question 9

The RST Partnership makes a proportionate distribution of its assets to Ryan, in complete liquidation of his partnership interest. The distribution consists of $40,000 in cash and capital assets with a basis to the partnership of $30,000 and a fair market value of $48,000. None of the payment is for partnership goodwill. At the time of the distribution, Ryan's partnership basis is $45,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return, the partnership recognizes:

Accepted Answer

A) Capital gain of $25,000 and increases the basis of its remaining assets by $12,500. 
B) Capital loss of $5,000 and decreases the basis of its remaining assets by $5,000. 
C) No gain or loss and increases the basis of its remaining assets by $25,000. 
D) No gain or loss and decreases the basis of its remaining assets by $58,000. 
E) None of the above. 
A) Capital gain of $25,000 and increases the basis of its remaining assets by $12,500. 
B) Capital loss of $5,000 and decreases the basis of its remaining assets by $5,000. 
C) No gain or loss and increases the basis of its remaining assets by $25,000. 
D) No gain or loss and decreases the basis of its remaining assets by $58,000. 
E) None of the above.

Question 10

Which of the following transactions will not result in termination of a partnership for Federal tax purposes?

Accepted Answer

A) The partnership is incorporated. 
B) A 70% interest in partnership capital and profits is sold to a third party purchaser. 
C) Cash is distributed in liquidation of a 60% partner's interest in a five-partner partnership. 
D) A 40% interest in partnership capital and profits is sold to the other partner in a two-partner partnership. 
E) None of the above. 
A) The partnership is incorporated. 
B) A 70% interest in partnership capital and profits is sold to a third party purchaser. 
C) Cash is distributed in liquidation of a 60% partner's interest in a five-partner partnership. 
D) A 40% interest in partnership capital and profits is sold to the other partner in a two-partner partnership. 
E) None of the above.

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided. 
A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided.

Question 13

Tom, Tina, Tatum, and Terry are equal owners in the 4-Ts LLC, a cash basis service entity. 4-Ts has unrealized receivables of $400,000 (basis of $0), and no other hot assets. A goodwill payment of $50,000 per partner is provided for in the LLC's operating agreement. If 4-Ts distributes cash of $300,000 to Tom in liquidation of his LLC interest, which of the following statements is correct?

Accepted Answer

A) This is a proportionate distribution with respect to hot assets. 
B) The $50,000 payment that relates to LLC goodwill cannot be deducted by the LLC. 
C) The partnership will terminate. 
D) The $150,000 § 736(a) payment will result in a capital gain to Tom. 
E) The $200,000 § 736(b) payment will be taxed to Tom as ordinary income. 
A) This is a proportionate distribution with respect to hot assets. 
B) The $50,000 payment that relates to LLC goodwill cannot be deducted by the LLC. 
C) The partnership will terminate. 
D) The $150,000 § 736(a) payment will result in a capital gain to Tom. 
E) The $200,000 § 736(b) payment will be taxed to Tom as ordinary income.

Question 14

Matt, a partner in the MB Partnership, receives a proportionate, nonliquidating distribution of property having a fair market value of $16,000 and a partnership basis of $23,000. Matt's basis in the partnership is $10,000 before the distribution. In this situation, Matt will recognize no gain or loss. He will take a $10,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Accepted Answer

A) True 
 B)False

Question 15

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?

Accepted Answer

A) $0 basis in inventory; $25,000 basis in land; $0 gain or loss. 
B) $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss. 
C) $16,000 basis in inventory; $25,000 basis in land; $9,000 loss. 
D) $18,000 basis in inventory; $32,000 basis in land; $0 gain. 
E) $25,000 basis in inventory; $25,000 basis in land; $0 gain or loss. 
A) $0 basis in inventory; $25,000 basis in land; $0 gain or loss. 
B) $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss. 
C) $16,000 basis in inventory; $25,000 basis in land; $9,000 loss. 
D) $18,000 basis in inventory; $32,000 basis in land; $0 gain. 
E) $25,000 basis in inventory; $25,000 basis in land; $0 gain or loss.

Question 16

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

Accepted Answer

A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided. 
A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided.

Question 17

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.

Accepted Answer

A) A payment for the partner's share of partnership income under § 736(a). 
B) A payment for the partner's share of partnership property under § 736(b). 
C) The payment includes both a § 736(a) and a § 736(b) element. 
A) A payment for the partner's share of partnership income under § 736(a). 
B) A payment for the partner's share of partnership property under § 736(b). 
C) The payment includes both a § 736(a) and a § 736(b) element.

Question 18

In a proportionate liquidating distribution in which the partnership is also liquidated, Ralph received cash of $30,000, accounts receivable (basis of $0, fair market value of $20,000), and land (basis of $1,000, fair market value of $10,000). Immediately before the distribution, Ralph's basis in the partnership interest was $40,000. Ralph realizes and recognizes a loss of $9,000, and his basis is $0 in the accounts receivable and $1,000 in the land.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided. 
A) Cash basis accounts receivable, for example. 
B) Fair market value exceeds 120% of basis. 
C) Inside basis of partnership property can be adjusted to reflect the purchase price paid. 
D) Terminates the partner's interest in the partnership. 
E) Ordinary income-producing items.
F)Cash, then inventory and unrealized receivables, then other assets.
G)Does not eliminate the partner's interest in the partnership.
H)Liquidation of the partner's interest in hot assets.
I)Changes the partner's or the partnership's ordinary income potential.
J)Any partnership assets other than cash, capital, or § 1231 assets.
K)Sometimes treated as an unrealized receivable.
L)No correct match provided.

Question 20

Match the following independent descriptions as "hot" (i.e., ordinary income-producing) or nonhot assets with the statements below.
-Inventory with a basis of $10,000 and a fair market value of $15,000.

Accepted Answer

A) Hot assets for purposes of distributions, liquidation of a partnership interest under § 736, and sale of a partnership interest. 
B) May be a hot asset for some but not all the purposes stated in (a). 
C) Not a hot asset. 
A) Hot assets for purposes of distributions, liquidation of a partnership interest under § 736, and sale of a partnership interest. 
B) May be a hot asset for some but not all the purposes stated in (a). 
C) Not a hot asset.

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

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

Which of the following transactions will not result in termination of a partnership for Federal tax purposes?

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

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

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. -Optional adjustment election

Match the following independent descriptions as "hot" (i.e., ordinary income-producing) or nonhot assets with the statements below. -Inventory with a basis of $10,000 and a fair market value of $15,000.

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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

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

Which of the following transactions will not result in termination of a partnership for Federal tax purposes?

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

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

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. -Optional adjustment election

Match the following independent descriptions as "hot" (i.e., ordinary income-producing) or nonhot assets with the statements below. -Inventory with a basis of $10,000 and a fair market value of $15,000.

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters