Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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.

The Crimson Partnership is a service provider. Its assets consist of unrealized receivables (basis of $0, fair market value of $400,000), cash of $300,000, and land (basis of $200,000, fair market value of $300,000). Assume 20% general partner Jana has a basis in her partnership interest of $100,000. If the ongoing partnership distributes $200,000 of cash to Jana in liquidation of her interest in the partnership, she will recognize ordinary income of $80,000 and a capital gain of $20,000.

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $40,000), and land (basis of $40,000, fair market value of $50,000). In addition, the partnership repays all liabilities, of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

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

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 $10,500.

Mark contributed property to the MDB Partnership in 2012. At the time of the contribution, the basis in the property was $40,000 and its value was $50,000. In 2016, MDB distributed that property to partner Dara. Because this is a distribution of precontribution gain property, MBD (the partnership) may be required to recognize a gain that is allocated to all of the partners.

The BAM Partnership distributed the following assets to partner Barbie in a proportionate nonliquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $25,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $15,000 each to the two land parcels, and her basis in her partnership interest will be reduced to $0.

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

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

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

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

Misha receives a proportionate nonliquidating distribution when the basis of his partnership interest is $60,000. The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000, fair market value of $20,000). How much gain or loss does Misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

If one partner dies in a two partner partnership, the estate cannot be a partner, so the partnership is terminated.

Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $100,000, fair market value of $130,000) and inventory (basis of $80,000, fair market value of $70,000). After the distribution, Megan's bases in the land and inventory are, respectively:

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 limited partner for goodwill, where goodwill is not provided for in the partnership agreement.

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

Nicholas is a 25% owner in the DDBN LLC (a calendar year entity). At the end of the last tax year, Nicholas's basis in his interest was $50,000, including his $20,000 share of LLC liabilities. On July 1 of the current tax year, Nicholas sells his LLC interest to Anna for $80,000 cash. In addition, Anna assumes Nicholas's share of LLC liabilities, which, at that date, was $15,000. During the current tax year, DDBN's taxable income is $120,000 (earned evenly during the year and allocated using the daily proration method). Nicholas's share of the LLC's unrealized receivables is valued at $6,000 ($0 basis). At the sale date, what is Nicholas's basis in his LLC interest, how much gain or loss must he recognize, and what is the character of the gain or loss?

A partnership continues in existence unless one of the following happens: 1) all assets are distributed to the partners in liquidation of the partnership, or 2) a majority of the partners vote to adopt a plan of liquidation of the partnership.

Jeremy sold his 40% interest in the HIJ Partnership to Ashley for $400,000. The inside basis of all partnership assets was $600,000 at the time of the sale. If the partnership makes a § 754 election, it will record a $160,000 step-up in the basis of the partnership assets, and the step-up will be attributed solely to Ashley.

At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000. She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $40,000), and land (basis of $30,000, fair market value of $50,000). After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are: