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

The December 31 balance sheet of the calendar-year BCD LLP reads as follows. Adjusted Basis FMV Cash \ 210,000 \ 210,000 Receivables -0- 120,000 Capital assets 42,000 69,000 Total \ 252,000 \ 399,000 Ben, capital \ 84,000 \ 133,000 Christina, capital 84,000 133,000 Danielle, capital 84,000 133,000 Total \ 252,000 \ 399,000 Each partner shares in 1/3 of the partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership. On December 31, Christina treated as a general partner) receives a distribution of $140,000 cash in liquidation of her partnership interest under § 736. Nothing is stated in the partnership agreement about goodwill. Christina's outside basis for the partnership interest immediately before the distribution is $84,000. How much is Christina's recognized gain from the distribution and what is the character of the gain? How much, if anything, can the partnership deduct? If a § 754 election is in effect, what if any) adjustment is made? Show your calculations.

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

Which of the following distributions would never result in gain recognition to the recipient distributee) partner?

Nick sells his 25% interest in the LMNO Partnership to new partner Katrina for $67,500. The partnership's assets consist of cash $100,000), land basis of $90,000, fair market value of $110,000), and inventory basis of $40,000, fair market value of $60,000). Nick's basis in his partnership interest was $57,500. On the sale, Nick will recognize ordinary income of $5,000 and a capital gain of $5,000.