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

Match the following statements with the best match from the choices below. Note: Choice K may be used more than once. a.Terminates the partner's interest in the partnership. b.Ordinary income-producing items. c.An unrealized receivable. d.Cash, then inventory and unrealized receivables, then other assets. e.Cash basis accounts receivable, for example. f.Fair market value exceeds 120% of basis. g.Changes the partner's or the partnership's ordinary income potential. h.Any partnership assets other than cash, capital, or § 1231 assets. i.Does not eliminate the partner's interest in the partnership. j.A distribution of all partnership hot assets. k.No correct match provided. -Nonqualified distribution

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. a.A payment for the partner's share of partnership income under § 736(a). b.A payment for the partner's share of partnership property under § 736(b). c.The payment includes both a § 736(a) and a § 736(b) element. -Installment receivables for sale of a capital asset.

The December 31,2008,balance sheet of the calendar-year JKL Partnership reads as follows. Each partner shares in 1/3 of the partnership capital,income,gain,loss,deduction and credit.On December 31,2008,Jan sells her 1/3 partnership interest to Jennifer for $43,000 cash.Assume the partnership makes a § 754 election for 2008. a.What is the amount of Jennifer's "step-up" adjustment under § 743(b)? 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.

Match the following statements with the best match from the choices below. Note: Choice M may be used more than once. a.Includes the partner's share of partnership liabilities. b.Could result from sale of a partnership interest for less than the partner's share of the inside basis of assets. c.Liquidation payments from this type of partnership are always § 736(b) payments. d.Could arise if a distribution results in gain to the distributee partner. e.May be a § 736(a) payment. f.May receive § 736(a) payments. g.Sale of more than 50% in less than 12 months. h.Liquidation payments from this type of partnership may include § 736(a) payments. i.A § 736(b) payment. j.Adjustment designed to bring inside and outside bases into balance. k.Partnership asset basis is at least $250,000 > FMV. l.Would result if the partner contributes appreciated property to the partnership. m.No correct match is provided. -Mandatory step down

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. a.A payment for the partner's share of partnership income under § 736(a). b.A payment for the partner's share of partnership property under § 736(b). c.The payment includes both a § 736(a) and a § 736(b) element. -Payment of an annuity to a retiring general partner in a service oriented partnership of 5% of partnership profits each year for the five years following the partner's retirement.

A partnership has accounts receivable with a basis of $0 and a fair market value of $10,000 and depreciation recapture potential of $15,000.All other assets of the partnership are either cash,capital assets,or § 1231 assets.If a purchaser acquires a 30% interest in the partnership from another partner,the selling partner will be required to recognize ordinary income of $7,500.

The December 31,2008,balance sheet of the DIP Partnership reads as follows. 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 31,2008,general partner Dana receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736.If Dana's outside basis for the partnership interest immediately before the distribution is $90,000,the recognized taxable gain and ordinary income from the distribution is:

Jason sold his 40% interest in the HIJ Partnership to Kim for $280,000.The inside basis of all partnership assets was $600,000 at the time of the sale.If the partnership makes a § 754 election,it will record a $40,000 step-up in the basis of the partnership assets,and the step-up will be attributed solely to Kim.

Toni's basis in her partnership interest was $60,000,including her $50,000 share of partnership liabilities.The partnership decides to liquidate,and after repaying all liabilities,distributes all remaining assets proportionately to the partners.Toni receives $20,000 cash and accounts receivable with a $12,000 basis and a $14,000 fair market value to the partnership.What gain or loss does Toni recognize,and what is her basis in the accounts receivable?

Match the following statements with the best match from the choices below. Note: Choice M may be used more than once. a.Includes the partner's share of partnership liabilities. b.Could result from sale of a partnership interest for less than the partner's share of the inside basis of assets. c.Liquidation payments from this type of partnership are always § 736(b) payments. d.Could arise if a distribution results in gain to the distributee partner. e.May be a § 736(a) payment. f.May receive § 736(a) payments. g.Sale of more than 50% in less than 12 months. h.Liquidation payments from this type of partnership may include § 736(a) payments. i.A § 736(b) payment. j.Adjustment designed to bring inside and outside bases into balance. k.Partnership asset basis is at least $250,000 > FMV. l.Would result if the partner contributes appreciated property to the partnership. m.No correct match is provided. -Step up

Match the following statements with the best match from the choices below. Note: Choice K may be used more than once. a.Terminates the partner's interest in the partnership. b.Ordinary income-producing items. c.An unrealized receivable. d.Cash, then inventory and unrealized receivables, then other assets. e.Cash basis accounts receivable, for example. f.Fair market value exceeds 120% of basis. g.Changes the partner's or the partnership's ordinary income potential. h.Any partnership assets other than cash, capital, or § 1231 assets. i.Does not eliminate the partner's interest in the partnership. j.A distribution of all partnership hot assets. k.No correct match provided. -Recaptured receivables

Tim receives a proportionate nonliquidating distribution from the RST Partnership when the basis of his interest is $60,000.The distribution consists of cash of $40,000 and inventory with a partnership basis of $30,000 and fair market value of $35,000.As a result of this distribution,Tim recognizes a $10,000 gain and takes a $30,000 basis in the inventory.

Match the following statements with the best match from the choices below. Note: Choice K may be used more than once. a.Terminates the partner's interest in the partnership. b.Ordinary income-producing items. c.An unrealized receivable. d.Cash, then inventory and unrealized receivables, then other assets. e.Cash basis accounts receivable, for example. f.Fair market value exceeds 120% of basis. g.Changes the partner's or the partnership's ordinary income potential. h.Any partnership assets other than cash, capital, or § 1231 assets. i.Does not eliminate the partner's interest in the partnership. j.A distribution of all partnership hot assets. k.No correct match provided. -Substantially appreciated inventory

Sarah owns a 30% interest in the capital and profits of the STP Partnership.Immediately before she receives a proportionate nonliquidating distribution from STP,the basis of her partnership interest is $25,000.The distribution consists of $20,000 in cash and land with a fair market value of $40,000.STP's adjusted basis in the land immediately before the distribution is $30,000.As a result of the distribution,Sarah recognizes a gain of $35,000 and her basis in the land is $40,000.

Greg has a 20% capital and profits interest in the calendar-year GDJ Partnership.His adjusted basis for his partnership interest on September 1 of the current year is $300,000.On that date,the partnership liquidates and makes a proportionate distribution of the following assets to Greg. a.Calculate Greg's recognized gain or loss on the liquidating distribution, if any. a. change if the partnership also distributed a chair to Greg? Assume the chair has a $500 adjusted basis (FMV is $800) to the partnership. b.How would your answer to

Match the following statements with the best match from the choices below. Note: Choice K may be used more than once. a.Terminates the partner's interest in the partnership. b.Ordinary income-producing items. c.An unrealized receivable. d.Cash, then inventory and unrealized receivables, then other assets. e.Cash basis accounts receivable, for example. f.Fair market value exceeds 120% of basis. g.Changes the partner's or the partnership's ordinary income potential. h.Any partnership assets other than cash, capital, or § 1231 assets. i.Does not eliminate the partner's interest in the partnership. j.A distribution of all partnership hot assets. k.No correct match provided. -Hot assets

Susan is a one-fourth limited partner in the SJ Partnership in which capital is not a material income-producing factor.Partnership assets consist of land (value of $100,000,basis of $80,000),accounts receivable (value of $100,000,basis of $0)and cash of $200,000.SJ distributes $100,000 of the cash to Susan in liquidation of her interest.Susan's basis in the partnership interest was $70,000 immediately before the distribution.Susan recognizes $25,000 of ordinary income,and a $5,000 capital gain on the distribution,and the partnership cannot claim a deduction for the $25,000 Susan recognizes as ordinary income.

Match the following statements with the best match from the choices below. Note: Choice M may be used more than once. a.Includes the partner's share of partnership liabilities. b.Could result from sale of a partnership interest for less than the partner's share of the inside basis of assets. c.Liquidation payments from this type of partnership are always § 736(b) payments. d.Could arise if a distribution results in gain to the distributee partner. e.May be a § 736(a) payment. f.May receive § 736(a) payments. g.Sale of more than 50% in less than 12 months. h.Liquidation payments from this type of partnership may include § 736(a) payments. i.A § 736(b) payment. j.Adjustment designed to bring inside and outside bases into balance. k.Partnership asset basis is at least $250,000 > FMV. l.Would result if the partner contributes appreciated property to the partnership. m.No correct match is provided. -Unstated goodwill

Match the following statements with the best match from the choices below. Note: Choice M may be used more than once. a.Includes the partner's share of partnership liabilities. b.Could result from sale of a partnership interest for less than the partner's share of the inside basis of assets. c.Liquidation payments from this type of partnership are always § 736(b) payments. d.Could arise if a distribution results in gain to the distributee partner. e.May be a § 736(a) payment. f.May receive § 736(a) payments. g.Sale of more than 50% in less than 12 months. h.Liquidation payments from this type of partnership may include § 736(a) payments. i.A § 736(b) payment. j.Adjustment designed to bring inside and outside bases into balance. k.Partnership asset basis is at least $250,000 > FMV. l.Would result if the partner contributes appreciated property to the partnership. m.No correct match is provided. -General partner

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. a.A payment for the partner's share of partnership income under § 736(a). b.A payment for the partner's share of partnership property under § 736(b). c.The payment includes both a § 736(a) and a § 736(b) element. -Inventory with a basis of $10,000 and a fair market value of $15,000.