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

Match the following statements with the best match from the following choices. Choice K may be used more than once. -Current distribution

Mark receives a proportionate current nonliquidating) distribution. At the beginning of the partnership year, the basis of his partnership interest is $100,000. During the year, he received a cash distribution of $40,000 and a property distribution basis of $30,000, fair market value of $25,000). In addition, Mark's share of partnership liabilities was reduced by $10,000 during the year. How much gain or loss does Mark recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?

Beth has an outside basis of $100,000 in the BJDE Partnership as of December 31 of the current year. On that date the partnership liquidates and distributes to Beth a proportionate distribution of $50,000 cash and inventory with an inside basis to the partnership of $10,000 and a fair market value of $16,000. In addition, Beth receives an antique desk not inventory) that has an inside basis and fair market value) of $5,000. None of the distribution is for partnership goodwill. How much gain or loss will Beth recognize on the distribution, and what basis will she take in the desk?

Julie is an active owner of a 52% interest in the JIR LLP, a consulting company service provider). Her basis in the partnership interest is $100,000, and her share of the partnership's inside basis in assets is $120,000. Julie can sell her interest in the LLP on the first day of the tax year to Irene and Rachel the other partners) for $100,000 each $200,000 total). Alternatively, the LLP can distribute $200,000 of cash to redeem Julie's interest. Assume the following: $10,000 of the redemption payment would be for the LLP's goodwill which is not provided for in the partnership agreement); Julie's share of JIR's unrealized receivables is $40,000; and JIR has a § 754 election in effect. What are the advantages and disadvantages of the sale versus the redemption from Julie's and JIR's perspective? What is your recommendation? Explain.

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.

Rex and Scott operate a law practice in partnership form. Because Rex and Scott are brothers, the partnership is subject to the family partnership income reallocation rules.

The December 31 balance sheet of the calendar year JKL Partnership reads as follows. Adjusted Basis FMV Cash \ 24,000 \ 24,000 Capital asset (nondepreciable) 33,000 105,000 Total \ 57,000 \ 129,000 Jan, capital \ 19,000 \ 43,000 Ken, capital 19,000 43,000 Laura, capital 43,000 Total \ 57,000 \ 129,000 Each partner shares in 1/3 of the partnership capital, income, gain, loss, deduction, and credit. On December 31, Jan sells her 1/3 partnership interest to Jennifer for $43,000 cash. Assume the partnership has a § 754 election in place. a. What is the amount of Jennifer's step up adjustment under § 743b)? b. If the nondepreciable capital asset is sold the next year for $120,000, determine the amount of gain that Jennifer will recognize on her tax return because of the sale.

Rajesh contributed appreciated property to the RS Partnership in year 1. In year 4, that property was distributed to Simon. Which one of the following statements best captures the tax consequences of the distribution?

The December 31 balance sheet of GST Services, LLP reads as follows. Adjusted Basis FMV Cash \ 300,000 \ 300,000 Receivables -0- 150,000 Capital assets Total \ 420,000 \ 600,000 George, capital \ 140,000 \ 200,000 Sue, capital 140,000 200,000 Tom, capital 140,000 200,000 Total \ 420,000 \ 600,000 The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership, and all partners are active in the business. On December 31, 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?

A gain arises only 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.

Randy owns a one-fourth capital and profits interest in the calendar year RUSR Partnership. His adjusted basis for his partnership interest was $200,000 when he received a proportionate nonliquidating distribution of the following assets. Partnership's Basis in Asset Asset's Fair Market Value Cash \ 120,000 \ 120,000 Inventory 60,000 90,000 a. Calculate Randy's recognized gain or loss on the distribution, if any. Explain. b. Calculate Randy's basis in the inventory received. c. Calculate Randy's basis for his partnership interest after the distribution.

Normally a distribution of property from a partnership does not result in gain recognition. However, a distribution of marketable securities may be treated in part as a distribution of cash that could result in gain recognition.

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

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:

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

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

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. -Distribution of $100,000 cash representing the partner's share of the value of partnership equipment that has potential depreciation recapture of $25,000.

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

A partnership has accounts receivable with a basis of $0 and a fair market value of $30,000 and depreciation recapture potential of $20,000. All other assets of the partnership are either cash, capital assets, or § 1231 assets. If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner is required to recognize ordinary income of $12,000.

In a proportionate liquidating distribution, RST Partnership distributes to partner Riley cash of $30,000, accounts receivable basis of $0, fair market value of $40,000), and land basis of $65,000, fair market value of $50,000). Riley's basis was $40,000 before the distribution. On the liquidation, Riley recognizes a gain of $0, and her basis is $10,000 in the land and $0 in the accounts receivable.