Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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

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?

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:

A partnership may make an optional election to adjust the basis of its property on a distribution to a partner which liquidates the partner's entire interest in the partnership. If such an election is in effect, the partnership:

Melissa is a partner in a continuing partnership. At the end of the current year, the partnership makes a proportionate, nonliquidating distribution to Melissa of $50,000 cash, inventory (basis of $22,000, fair market value of $20,000), and land (basis of $30,000, fair market value of $60,000). Melissa's basis in the partnership interest was $90,000 before the distribution. What is Melissa's basis in the inventory, land, and partnership interest following the distribution?

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

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 $100,000 to a managing member (general partner) in a cash basis service-oriented LLC for the member's share of unrealized receivables and office equipment.

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

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.

A distribution can be "proportionate" (as defined for purposes of Subchapter K) even if only one partner receives assets from the partnership.

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.

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

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

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

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

George (a calendar year taxpayer) owns a 40% interest in the cash-basis GLO LLP. GLO has a natural business year ending March 31. George has found another opportunity and would like to sell his interest on July 1 of the current tax year to new partner Monica. What are some of the issues that should be considered by George, Monica, and GLO?

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

A gain will only arise on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash.

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

A disproportionate distribution arises when the partnership distributes a share of partnership hot assets to one or more partners that is not the same as the partner's ownership interest in the partnership.