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

Jamie owns a 40% interest in the JSD LLC. In liquidation of the entity, Jamie receives a proportionate distribution of $20,000 cash, inventory (basis of $12,000 and fair market value of $14,000), and land (basis of $10,000 and fair market value of $30,000). Jamie's basis in the entity immediately before the distribution was $50,000. As a result of the distribution, what is Jamie's basis in the inventory and land, and how much gain or loss does she recognize?

Jeremy receives a proportionate nonliquidating distribution from the JKL Partnership when the basis of his interest is $100,000. The distribution consists of cash of $25,000, land with a basis of $30,000 and a fair market value of $65,000, and inventory with a partnership basis of $50,000 and fair market value of $60,000. As a result of this distribution, Jeremy recognizes a $50,000 gain and takes a $65,000 basis in the land and a $60,000 basis in the inventory.

Which of the following transactions will not result in termination of a partnership for Federal tax purposes?

Which of the following statements about the transfer of a partnership interest is not true?

Marcie is a 40% member of the M&A LLC. Her basis is $40,000 immediately before the LLC distributes to her $30,000 of cash and land (basis to the LLC of $20,000 and fair market value of $25,000). As a result of the proportionate, nonliquidating distribution, Marcie recognizes a gain of $15,000 and her basis in the land equals its fair market value of $25,000.

In a proportionate liquidating distribution, Lina receives a distribution of $10,000 cash, accounts receivable (basis of $0 and fair market value of $12,000), and inventory (basis of $30,000 and fair market value of $40,000). Lina's basis in the entity immediately before the distribution was $80,000. As a result of the distribution, what is Lina's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

A payment to a retiring general partner for his or her share of goodwill of a partnership in which capital is not a material income-producing factor is classified as a § 736(a) income payment and results in ordinary income to the retiring partner and a current deduction to the partnership, if the goodwill payment is not provided for in the partnership agreement.

A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts.

Shelby, a partner in the STU partnership, received a proportionate nonliquidating distribution of $50,000 cash, unrealized receivables with a basis of $0 and a fair market value of $40,000, and land with a basis of $35,000 and a fair market value of $25,000. Her basis in the partnership interest immediately before the distributions was $70,000. She will recognize $0 gain on the distribution, and her basis in the receivables and land will be $0 and $20,000 respectively.

In a proportionate liquidating distribution, RST Partnership distributes to partner Riley cash of $30,000, accounts receivable (basis of $0 and fair market value of $40,000), and land (basis of $65,000 and fair market value of $50,000). Riley's basis was $40,000 before the distribution. On the liquidation, Riley recognizes a gain of $0, and her basis is $10,000 in the land and $0 in the accounts receivable.

Zach's partnership interest basis is $80,000. Zach receives a proportionate, liquidating distribution from a liquidating partnership of $60,000 cash and inventory having a basis of $30,000 to the partnership and a fair market value of $26,000. Zach assigns a basis of $20,000 to the inventory and recognizes no gain or loss.

Last year, Jose contributed nondepreciable property with a basis of $35,000 and a fair market value of $45,000 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 $28,000 and a fair market value of $36,000. The basis in his partnership interest at the time of the distribution was $30,000. How much gain or loss does Jose recognize on the distribution? (Assume no other distributions have been made to Jose, the property he originally contributed is still owned by the partnership, and this is not a disguised sale transaction.)

Jonathon owns a one-third interest in a liquidating partnership. Immediately before the liquidation, Jonathon's basis in the partnership interest is $60,000. The partnership distributes cash of $32,000 and two parcels of land (each with a fair market value of $10,000). Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000. Jonathon's basis in the two parcels of land is:

Kyle gifts a 40% interest in his consulting business to his daughter Amy. For the current tax year, the KA Partnership reports income of $100,000. Kyle's services to the partnership were valued at $40,000. For the current tax year, Amy would report a $24,000 share of the partnership's income.

Matt receives a proportionate nonliquidating distribution. At the beginning of the partnership year, the basis of his partnership interest is $60,000. During the year, he received a cash distribution of $25,000 and a property distribution (basis of $20,000 and fair market value of $12,000). In addition, Matt's share of partnership liabilities was reduced by $20,000 during the year. How much gain or loss does Matt recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?

For purposes of determining gain on a current distribution to a partner, a distribution of cash includes relief of a partner's share of partnership liabilities and certain distributions of marketable securities.

A distribution cannot be "proportionate" if only one partner receives assets from the partnership.

Tim and Darby are equal partners in the TD Partnership. Partnership income for the year is $60,000. Tim needs cash in order to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion. If the partners agree, it is acceptable for TD to distribute $8,000 to Tim, and no cash or other property to Darby.

Which of the following statements correctly reflects the rules regarding proportionate liquidating distributions?

Which of the following is not typically considered to be a "hot asset?"