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

Generally, no gain is recognized on a proportionate liquidating or nonliquidating distribution of non-cash property even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

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

Match the following statements with the best match from the choices below. Note: Choice N 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 more 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 loss to the distributee partner. e. May be a § 736(a) payment. f. May receive § 736(a) payments. g. Probably treated as a general partner for § 736 purposes h. Sale of more than 50% in less than 12 months. i. Liquidation payments from this type of partnership may include § 736(a) payments. j. A § 736(b) payment. k. Adjustment designed to bring inside and outside bases into balance. l. Partnership asset basis is at least $250,000 > FMV. m. Would result if the partner contributes appreciated property to the partnership. n. No correct match is provided. -Mandatory step down

Scott owns a 30% interest in the capital and profits of the SOS Partnership. Immediately before he receives a proportionate nonliquidating distribution from SOS, the basis of his partnership interest is $40,000. The distribution consists of $30,000 in cash and land with a fair market value of $80,000. SOS's adjusted basis in the land immediately before the distribution is $50,000. As a result of the distribution, Scott recognizes no gain or loss and his basis in the land is $10,000.

Match the following statements with the best match from the choices below. Note: Choice N 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 more 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 loss to the distributee partner. e. May be a § 736(a) payment. f. May receive § 736(a) payments. g. Probably treated as a general partner for § 736 purposes h. Sale of more than 50% in less than 12 months. i. Liquidation payments from this type of partnership may include § 736(a) payments. j. A § 736(b) payment. k. Adjustment designed to bring inside and outside bases into balance. l. Partnership asset basis is at least $250,000 > FMV. m. Would result if the partner contributes appreciated property to the partnership. n. No correct match is provided. -Capital intensive partnership

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

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once. a. Cash basis accounts receivable, for example. b. Fair market value exceeds 120% of basis. c. Inside basis of partnership property can be adjusted to reflect the purchase price paid. d. Terminates the partner's interest in the partnership. e. Ordinary income-producing items. f. Cash, then inventory and unrealized receivables, then other assets. g. Does not eliminate the partner's interest in the partnership. h. Liquidation of the partner's interest in hot assets. i. Changes the partner's or the partnership's ordinary income potential. j. Any partnership assets other than cash, capital, or § 1231 assets. k. Sometimes treated as an unrealized receivable. l. No correct match provided. -Optional adjustment election

Loss cannot be recognized on a distribution from a partnership unless cash, unrealized receivables and/or § 1231 assets are the only items distributed.

Last year, Miguel contributed nondepreciable property with a basis of $50,000 and a fair market value of $75,000 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 $50,000 and a fair market value of $62,000. The basis in his partnership interest at the time of the distribution was $60,000. How much gain or loss does Miguel recognize on the distribution? (Assume no other distributions have been made to Miguel, the property he originally contributed is still owned by the partnership, and this is not a disguised sale transaction.)

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 (fair market value of $100,000, basis of $80,000), accounts receivable (fair market 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. How much gain or loss does Susan recognize and what is its character? How much can the partnership deduct?

Match the following independent descriptions as "hot" (i.e., ordinary income) or nonhot assets with the statements below. a. Hot assets for purposes of distributions, liquidation of a partnership interest under § 736, and sale of a partnership interest. b. May be a hot asset for some but not all the purposes stated in (a). c. Not a hot asset. -Installment receivables for sale of a capital asset.

The December 31, 2014, balance sheet of the RST General Partnership reads as follows. The partners share equally in partnership capital, income, gain, loss, deduction and credit. Ted's adjusted basis for his partnership interest is $40,000. On December 31, 2014, he retires from the partnership, receiving a $60,000 cash payment in liquidation of his interest. The partnership agreement states that $2,500 of the payment is for goodwill. Which of the following statements about this distribution is false?

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 N 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 more 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 loss to the distributee partner. e. May be a § 736(a) payment. f. May receive § 736(a) payments. g. Probably treated as a general partner for § 736 purposes h. Sale of more than 50% in less than 12 months. i. Liquidation payments from this type of partnership may include § 736(a) payments. j. A § 736(b) payment. k. Adjustment designed to bring inside and outside bases into balance. l. Partnership asset basis is at least $250,000 > FMV. m. Would result if the partner contributes appreciated property to the partnership. n. No correct match is provided. -Unstated goodwill

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

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once. a. Cash basis accounts receivable, for example. b. Fair market value exceeds 120% of basis. c. Inside basis of partnership property can be adjusted to reflect the purchase price paid. d. Terminates the partner's interest in the partnership. e. Ordinary income-producing items. f. Cash, then inventory and unrealized receivables, then other assets. g. Does not eliminate the partner's interest in the partnership. h. Liquidation of the partner's interest in hot assets. i. Changes the partner's or the partnership's ordinary income potential. j. Any partnership assets other than cash, capital, or § 1231 assets. k. Sometimes treated as an unrealized receivable. l. No correct match provided. -Disproportionate distribution

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000), and inventory (basis of $50,000, fair market value of $60,000). Sara's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

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 step­up the basis of Amber's share of partnership assets under §§ 754 and 743(b)?

In a proportionate liquidating distribution in which the partnership is also liquidated, Ralph received cash of $30,000, accounts receivable (basis of $0, fair market value of $20,000), and equipment (basis of $0, fair market value of $10,000). Immediately before the distribution, Ralph's basis in the partnership interest was $40,000. Ralph realizes and recognizes a loss of $10,000, and his basis is $0 in both the accounts receivable and the equipment.

Match the following statements with the best match from the choices below. Note: Choice N 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 more 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 loss to the distributee partner. e. May be a § 736(a) payment. f. May receive § 736(a) payments. g. Probably treated as a general partner for § 736 purposes h. Sale of more than 50% in less than 12 months. i. Liquidation payments from this type of partnership may include § 736(a) payments. j. A § 736(b) payment. k. Adjustment designed to bring inside and outside bases into balance. l. Partnership asset basis is at least $250,000 > FMV. m. Would result if the partner contributes appreciated property to the partnership. n. No correct match is provided. -General partner