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

Stephanie receives a proportionate nonliquidating distribution from the QRS Partnership. The distribution consists of $60,000 cash and property with an adjusted basis to the partnership of $30,000 and a fair market value of $25,000. Immediately before the distribution, Stephanie's adjusted basis for her partnership interest is $80,000. Stephanie's basis in the noncash property received is:

The LMO Partnership distributed $30,000 cash to Emma in a proportionate, nonliquidating distribution. Emma's basis in her partnership interest was $25,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes a $5,000 gain.

Several years ago, the Jaymo Partnership purchased 2,000 shares of ABCO stock (publicly traded) for $40,000; the stock now has a fair market value of $90,000. If this stock is distributed to Jason in liquidation of his 30% partnership interest, it is treated as a cash distribution of $75,000 and a property distribution of $15,000.

Tyler's basis in his partnership interest is $110,000, including his share of partnership debt. Sarah buys Tyler's partnership interest for $60,000 cash and she assumes Tyler's $90,000 share of the partnership's debt. If the partnership owns no hot assets, Tyler will recognize a capital loss of $50,000.

Megan's basis was $100,000 in the MAR Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $80,000, fair market value of $100,000) and inventory (basis of $60,000, fair market value of $60,000). After the distribution, Megan's bases in the land and inventory are, respectively:

Mike contributed property to the MDB Partnership in 2008. At the time of the contribution, the basis in the property was $30,000 and its value was $55,000. In 2011, MDB distributed that property to partner Dana. Because distributions from a partnership to a partner are generally nontaxable, neither Mike nor Dana should recognize any gain on the distribution.

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:

Brittany, Jennifer, and Daniel are equal partners in the BJD Partnership. The partnership balance sheet reads as follows on December 31 of the current year. Partner Daniel has an adjusted basis of $40,000 for his partnership interest. If Daniel sells his entire partnership interest to new partner Amber for $73,000 cash, how much can the partnership step-up the basis of Amber's share of partnership assets under §§ 754 and 743(b)?

Jared owns a 40% interest in the capital and profits of the JAJ Partnership. Immediately before he receives a proportionate nonliquidating distribution from JAJ, the basis of his partnership interest is $60,000. The distribution consists of $40,000 in cash and land with a fair market value of $25,000. JAJ's adjusted basis in the land immediately before the distribution is $30,000. As a result of the distribution, Jared recognizes no gain or loss and his basis in the land is $20,000.

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.

Martin has a basis in a partnership interest of $100,000. At the end of the current year, the partnership distributed to Martin, in a proportionate nonliquidating distribution, cash of $10,000, inventory (basis to the partnership of $6,000 and fair market value of $12,000), and land (basis to the partnership of $20,000 and fair market value of $15,000). In addition, Martin's share of partnership debt decreased by $10,000 during the year. What basis does Martin take in the inventory and land and in the partnership interest following the distribution?

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

If a partnership incorporates, it is always deemed to first distribute all of its assets and liabilities to the partners in complete liquidation. Then the partners are deemed to contribute those assets to the new corporation (with the corporation assuming the related liabilities) in a transaction that qualifies under § 351.

On December 31 of last year, Rachel gave her daughter, Courtney, a gift of a 25% interest in a partnership in which capital is a material income-producing factor. For the current calendar year, the partnership's ordinary income was $200,000. Rachel and Courtney were the only partners, and there were no guaranteed payments. Rachel's services performed for the partnership were worth $40,000, and Courtney has never performed any services. What is Courtney's distributive share of partnership income for the current year?

The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership is liquidated: $25,000 cash, land parcel A (basis of $5,000, fair market value of $30,000), and land parcel B (basis of $5,000, fair market value of $15,000). James's basis in his partnership interest was $85,000 immediately before the distribution.

Josh has a 25% capital and profits interest in the calendar-year GDJ Partnership. His adjusted basis for his partnership interest on October 15 of the current year is $300,000. On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh.

Pat is a 40% member of the P&J LLC. Her basis is $30,000 immediately before the LLC distributes to her $40,000 of cash and land (basis to the partnership of $25,000 and fair market value of $50,000). As a result of the proportionate nonliquidating distribution, Pat recognizes a gain of $10,000 and her basis in the land is $0.

Tom and Terry are equal owners in the Tatum LLC, a cash basis service entity. Tatum has unrealized receivables of $400,000 (basis of $0), and no other hot assets. Goodwill is provided for in the LLC's operating agreement. If Tatum distributes cash of $500,000 to Tom in liquidation of his LLC interest, which of the following statements is incorrect?

Which of the following is not true regarding a limited liability company?

Chelsea owns a 25% capital and profits interest in the calendar-year CJDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $170,000. On that date, she receives a proportionate nonliquidating distribution of the following assets: