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

Tim and Janet are equal partners in the TJ Partnership.Partnership income for the year is $20,000.Tim needs cash in order to pay tax on his share of the partnership income,but Janet wants to leave the cash in the partnership for expansion.If the partners agree,it is acceptable to distribute $5,000 to Tim,and no cash or other property to Janet.

The December 31,2008,balance sheet of the BCD General 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 Cassie receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736.Nothing is stated in the partnership agreement about goodwill.Cassie's outside basis for the partnership interest immediately before the distribution is $74,000. How much is Cassie's recognized gain from the distribution and what is the character of the gain?

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 $60,000 cash for a partner's share of unrealized receivables where the partner is a limited partner,and most of the partnership's income is derived from services.

Generally,gain is recognized on a proportionate current or liquidating distribution only if the cash distributed exceeds the partner's basis in the partnership interest.For this purpose,relief of a partner's share of a liability is treated as a distribution of cash,and marketable securities distributed may be treated as cash.

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 down

A partnership may make an optional election to adjust the basis of its property on a distribution to a partner which liquidates the partner's entire interest in the partnership.If such an election is in effect,the partnership:

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. -Unrealized receivable

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 $100,000 cash,representing the partner's share of the value of partnership equipment which has a potential depreciation recapture of $25,000.

Which of the following statements,if any,about an LLC is false?

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. -Disproportionate distribution

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. -Depreciation recapture

Wendy receives a proportionate nonliquidating distribution from the WXY Partnership.The distribution consists of $75,000 cash and property with an adjusted basis to the partnership of $20,000 and a fair market value of $25,000.Immediately before the distribution,Wendy's adjusted basis for her partnership interest is $90,000.Wendy's basis in the noncash property received is:

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 to a limited partner for $10,000 of goodwill,where goodwill is not provided for in the partnership agreement.

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 to a general partner for $10,000 of goodwill,where goodwill is provided for in the partnership agreement,and the partnership derives most of its income from services.

Last year,Oscar contributed nondepreciable property with a basis of $40,000 and a fair market value of $50,000 to the Starling Partnership in exchange for a 25% interest in the partnership.In the current year,he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $26,000 and a fair market value of $32,000.The basis in his partnership interest at the time of the distribution was $30,000.How much gain or loss does Oscar recognize on the distribution? (Assume no other distributions have been made to Oscar,the property he originally contributed is still owned by the partnership,and this is not a disguised sale transaction.)

James received $42,000 cash and a capital asset (basis of $45,000 and fair market value of $54,000)in a proportionate liquidating distribution.His basis in his partnership interest was $90,000 prior to the distribution.How much gain or loss does James recognize and what is his basis in the asset received?

Maggie,a partner in the Magpie partnership,received a proportionate nonliquidating distribution of $20,000 cash,unrealized receivables with a basis of $0 and a fair market value of $30,000,and land with a basis of $25,000 and a fair market value of $20,000.Her basis in the partnership interest immediately before the distributions was $30,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $20,000 respectively.

Carla,Marla,and Yancy are equal partners in the CMY Partnership.The partnership balance sheet reads as follows on December 31 of the current year. Partner Yancy has an adjusted basis of $35,000 for his partnership interest.If Yancy sells his entire partnership interest to new partner Paula for $60,000 cash,how much can the partnership step-up the basis of Paula's share of partnership assets under §§ 754 and 743(b)?

Marty receives a proportionate nonliquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000; fair market value of $23,000).How much gain or loss does Marty recognize,and what is her basis in the distributed property and in her partnership interest following the distribution?

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. -Capital intensive partnership