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

In a liquidating distribution that liquidates the partnership, each partner recognizes gain or loss equal to the difference between the value of assets received less the partner's basis in the partnership interest.

Match the following independent descriptions as hot i.e., ordinary income-producing) or nonhot assets with the following statements. -Inventory with a basis of $10,000 and a fair market value of $10,500.

The Crimson Partnership is a service-providing consulting firm, and Jana is a 20% general partner with a $100,000 basis in her partnership interest. Crimson's 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). If Crimson distributes $200,000 of cash to Jana in liquidation of her interest in the partnership and Crimson does not liquidate), Jana will recognize ordinary income of $80,000 and a capital gain of $20,000.

Frank receives a proportionate current nonliquidating) distribution from the AEF Partnership. The distribution consists of $10,000 cash and property adjusted basis to the partnership of $54,000 and fair market value of $60,000). Immediately before the distribution, Frank's adjusted basis in the partnership interest was $50,000. His basis in the noncash property received is:

Jack has a basis in a partnership interest of $300,000, including his $80,000 share of partnership debt. At the end of the current year, the partnership pays off its liabilities and makes a proportionate current nonliquidating) distribution to its partners. Jack receives a parcel of land partnership basis = $120,000, value = $135,000) and inventory partnership basis = $160,000, value = $180,000). Following the distribution, what is Jack's basis in the land, inventory, and the partnership interest?

Match the following independent descriptions as hot i.e., ordinary income-producing) or nonhot assets with the following statements. -Highly appreciated land held by the partnership for the purpose of subdividing and selling lots.

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

Miguel contributed substantially appreciated property to the MR Partnership in year 1. In year 4, other property was distributed to Miguel. Which one of the following statements is most likely to be true regarding the contribution and/or distribution?

Your client has operated a sole proprietorship for several years and is now interested in raising capital for expansion. client is considering forming either a C corporation or an LLC. a. Describe the treatment of an LLC and discuss any advantages the LLC offers over the C corporation. b. Assume instead the client has previously operated as a C corporation. Describe the tax consequences of converting to an LLC.

On July 1, George is planning to retire from the GDP LLC where he is an active managing member owning a 60% interest. Capital is not a material income-producing factor to GDP. The LLC can either redeem his interest under § 736 or he can sell his interest to Dale, who currently owns a 20% interest. The LLC's operating agreement is silent regarding treatment of goodwill. As to George's alternatives, which one of the following statements is true?

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property adjusted basis to the partnership of $10,000 and fair market value of $12,000). The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

Match the following statements with the best match from the following choices. Choice M may be used more than once. -Sales price of partnership interest

Match the following statements with the best match from the following choices. Choice M may be used more than once. -Service-providing partnership

Cynthia's basis in her LLC interest was $60,000, including her $40,000 share of the LLC's debt. In a proportionate liquidating distribution in which the LLC also liquidates, Cynthia receives cash of $50,000, and inventory with a basis of $3,000 and a fair market value of $5,000. Before the partnership liquidates, it repays all of its liabilities. Cynthia recognizes a gain of $30,000 on the distribution and takes a basis of $0 in the inventory.

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.

In a proportionate liquidating distribution, Sam receives a distribution of $30,000 cash, accounts receivable basis of $0, fair market value of $50,000), and land basis of $20,000, fair market value of $50,000). In addition, the partnership repays all liabilities of which Sam's share was $40,000. Sam's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sam's basis in the accounts receivable and land, and how much gain or loss does he recognize?

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?

Karli owns a 25% capital and profits interest in the calendar year KJDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $200,000. On that date, she receives a proportionate current nonliquidating) distribution of the following assets. Partnership's Basis in Asset Asset's Fair Market Value Cash \ 120,000 \ 120,000 Inventory 50,000 60,000 Land (held for investment) 70,000 100,000 a. Calculate Karli's recognized gain or loss on the distribution if any. b. Calculate Karli's basis in the inventory received. c. Calculate Karli's basis in land received. The land is a capital asset. d. Calculate Karli's basis for her partnership interest after the distribution.

Which of the following statements is correct regarding termination of a three-person partnership?

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