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

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

Fred and Wilma formed the equally owned FW partnership several years ago. On the last day of the prior tax year, they each transferred a 20% interest in the FW partnership a capital-intensive business) to their son, Rocky 40% total to Rocky; Fred and Wilma each retained 30% interests). For the current tax year, FW reported income of $200,000. Fred provides services to the partnership valued at $60,000; Wilma and Rocky provide no services. The $200,000 of income will be allocated $102,000 to Fred, $56,000 to Rocky, and $42,000 to Wilma.

In a proportionate current nonliquidating) distribution of cash and a capital asset, the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner's basis in the partnership interest.

A partnership may make an optional election to adjust the basis of its property under § 754. If such an election is in effect, the partnership:

Tom, Tina, Tatum, and Terry are equal owners treated as general partners) 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?

On June 30 of the current tax year, Sal sells her 40% interest in the STU Partnership to new partner James for $300,000, including Sal's share of partnership liabilities. At the beginning of the tax year, Sal's basis in her partnership interest was $80,000 excluding her share of partnership debt). The partnership reported income of $240,000 for the year, and Sal's share of partnership debt was $100,000 at the sale date. Assume the partnership uses a monthly proration of income.) At the sale date, the partnership's assets consist of cash $390,000), land basis of $180,000, Fair market value of $210,000), and unrealized receivables basis of $0, fair market value of $150,000). What is Sal's basis at the sale date, and how much gain must Sal recognize?

Scott owns a 30% interest in the capital and profits of the SOS Partnership. Immediately before he receives a proportionate current nonliquidating) distribution from SOS, the basis of his partnership interest is $40,000. The distribution consists of $30,000 in cash and land with a fair market value of $80,000. SOS's adjusted basis in the land immediately before the distribution is $50,000. As a result of the distribution, Scott recognizes no gain or loss and his basis in the land is $10,000.

The ELF Partnership distributed $20,000 cash to Emma in a proportionate, current nonliquidating) distribution. Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

The December 31 balance sheet of DBW, LLP, a service-providing partnership, reads as follows. Adjusted Basis FMV Cash \ 180,000 \ 180,000 Receivables -0- 60,000 Capital assets 90,000 120,000 Total \ 270,000 \ 360,000 Dana, capital \ 90,000 \ 120,000 Brooke, capital 90,000 120,000 Whitney, capital 90,000 Total \ 270,000 \ 360,000 The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership. On December 31, partner Dana who is an active managing partner in the partnership) receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736. Dana's outside basis for the partnership interest immediately before the distribution is $90,000. How much is her 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 $10,000 cash to a limited partner for goodwill when goodwill is not provided for in the partnership agreement.

Dan receives a proportionate current nonliquidating) distribution when the basis of his partnership interest is $30,000. The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500. Dan's basis in the noncash property is:

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

Bob received a proportionate current nonliquidating) distribution of land from the BZ Partnership. The land had a fair market value of $15,000 and a basis to the partnership of $10,000. The land was held for investment purposes by the partnership. Bob's basis in his partnership interest immediately before the distribution was $6,000. If the partnership has a § 754 election in effect, it will record a $4,000 step-down in the basis of remaining assets, and the step-down will be attributed to all partners in the partnership.

In a proportionate liquidating distribution in which the partnership is liquidated, Bill received cash of $120,000, inventory basis of $6,000, fair market value of $8,000), and a capital asset basis and fair market value of $16,000). Immediately before the distribution, Bill's basis in the partnership interest was $90,000. a. How much gain or loss will Bill recognize on the distribution? b. What is Bill's basis in the inventory and the capital asset?

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.

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. Adjusted Basis FMV Cash \ 100,000 \ 100,000 Accounts Receivable -0- 80,000 Land Total \ 340,000 \ 400,000 Determine the amount and character of any gain that Hannah recognizes on the sale.

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

A two-person partnership terminates when one partner sells his, her, or its partnership interest to the other partner. This termination triggers a deemed liquidating distribution to the partners, and a tax on the realized gain fair market value less partnership basis) in the partnership's assets.

Jonathon owns a one-third interest in a liquidating partnership. Immediately before the liquidation, his 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:

Mark contributed property to the MDB Partnership in year 1. At the time of the contribution, the basis in the property was $40,000 and its value was $50,000. In year 5, MDB distributed that property to partner Dara. Because this is a distribution of precontribution gain property, Dara may be required to recognize a gain.