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

Marilyn is a partner in a continuing partnership.At the end of the current year,the partnership distributed to Marilyn in a proportionate,nonliquidating distribution cash of $40,000,inventory with a basis to the partnership of $12,000 and a fair market value of $10,000,and a parcel of land with a basis to the partnership of $30,000 and a fair market value of $40,000.Marilyn's basis in the partnership interest was $80,000 before the distribution.What basis does Marilyn take in the inventory and land,and what is her basis in the partnership interest following the distribution?

The LMO Partnership distributed $30,000 cash to Laura in a proportionate,nonliquidating distribution.Laura's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution,Laura's basis is reduced to ($5,000)(negative)and she recognizes no gain or loss.

The ABC Partnership makes a proportionate distribution of its assets to Charles,in complete liquidation of his partnership interest.The distribution consists of $30,000 in cash and capital assets with a basis to the partnership of $20,000 and a fair market value of $28,000.None of the payment is for partnership goodwill.At the time of the distribution,Charles's partnership basis is $42,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return,it 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 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. -Limited liability partnership

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. -Marketable securities (not held as inventory).

Milton contributed property to the MDB Partnership in 2006.At the time of the contribution,the basis in the property was $10,000 and its value was $15,000.In 2008,MDB distributed that property to partner Dana.Milton may be required to recognize gain on the distribution to Dana.

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. -Nonliquidating distribution

On December 31 of last year,Pat gave his daughter,Joy,a gift of a 50% interest in a partnership in which capital is a material income-producing factor.For the current calendar year,the partnership's ordinary income was $100,000.Pat and Joy were the only partners,and there were no guaranteed payments.Pat's services performed for the partnership were worth $40,000,and Joy has never performed any services.What is Joy's distributive share of partnership income for the current year?

Rita sells her 25% interest in the RSTU Partnership to Nancy for $90,000 cash.At the end of the year prior to the sale,Rita's basis in RSTU was $60,000.The partnership allocates $12,000 of income to Rita for the portion of the year she was a partner.On the date of the sale,the partnership assets and the agreed fair market values were as follows. Determine the amount and character of any gain that Rita recognizes on the sale.

Beth has an outside basis of $60,000 in the BBDE Partnership as of December 31 of the current year.On that date the partnership liquidates and distributes to Beth a proportionate distribution of $20,000 cash and inventory with an inside basis to the partnership of $18,000 and a fair market value of $22,000.In addition,Beth receives a desk (not inventory)which has an inside basis and fair market value of $200 and $350,respectively.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?

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000.His basis in his partnership interest was $15,000 immediately before the distribution.Carlos assigns a basis of $5,000 to the inventory,and recognizes a $2,000 capital loss.

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 general partner,and most of the partnership's income is derived from services.

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 $25,000 cash for a partner's share of substantially appreciated inventory.

The MBC Partnership makes a § 736(b)cash payment of $50,000 to partner Betty in liquidation of her interest in the partnership.The partnership owns no hot assets.Betty's basis in her partnership interest before the distribution was $20,000.If the partnership has a § 754 election in effect,it will record a $30,000 decrease in its inside basis in partnership assets,allocable to the remaining partners in 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. -Inventory

Larry's partnership interest basis is $60,000.Larry receives a proportionate,liquidating distribution from a liquidating partnership of $45,000 cash and inventory having a basis of $30,000 to the partnership and a fair market value of $28,000.Larry assigns a basis of $15,000 to the inventory and recognizes no gain or loss.

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. -Service providing partnership

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. -Cash basis 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. -Stated goodwill