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

Suzy owns a 30% interest in the JSD LLC.In liquidation of the entity,Suzy receives a proportionate distribution of $30,000 cash,inventory (basis of $16,000,fair market value of $18,000),and land (basis of $25,000,fair market value of $30,000).Suzy's basis in the entity immediately before the distribution was $80,000.As a result of the distribution,what is Suzy's basis in the inventory and land,and how much gain or loss does she recognize?

In a proportionate nonliquidating distribution of cash and a capital asset,the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner's basis in the partnership interest.

The December 31,2012,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 31,2012,general partner Christina receives a distribution of $140,000 cash in liquidation of her partnership interest under § 736.Nothing is stated in the partnership agreement about goodwill.Christina's outside basis for the partnership interest immediately before the distribution is $84,000. How much is Christina's recognized gain from the distribution and what is the character of the gain?

The December 31,2012 balance sheet of GRT Services,LLP reads as follows: The partners share equally in partnership capital,income,gain,loss,deduction,and credit.Capital is not a material income-producing factor to the partnership,and all partners are active in the business.On December 31,2012,general partner Ronda receives a distribution of $190,000 cash in liquidation of her partnership interest under § 736.Ronda's outside basis for the partnership interest immediately before the distribution is $140,000.How much is Ronda's gain or loss on the distribution and what is its character?

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 $50,000).After the distribution,Megan's bases in the land and inventory are,respectively:

Lori,a partner in the JKL partnership,received a proportionate nonliquidating distribution of $10,000 cash,unrealized receivables with a basis of $0 and a fair market value of $15,000,and land with a basis of $6,000 and a fair market value of $10,000.Her basis in the partnership interest immediately before the distributions was $14,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $4,000 respectively.

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.

In a proportionate liquidating distribution in which the partnership is liquidated,Marcus received cash of $60,000,inventory (basis of $10,000,fair market value of $12,000),and a capital asset (basis and fair market value of $22,000).Immediately before the distribution,Marcus's basis in the partnership interest was $100,000.

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?

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,as long as the goodwill payment is provided for in the partnership agreement.

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.

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?

Which of the following distributions would never result in gain recognition to the recipient partner?

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 $40,000 and a fair market value of $52,000.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. )

The BAM Partnership distributed the following assets to partner Barbie in a proportionate non-liquidating distribution: $10,000 cash,land parcel A (basis of $5,000,fair market value of $30,000)and land parcel B (basis of $25,000,fair market value of $20,000).Barbie's basis in her partnership interest was $40,000 immediately before the distribution.Barbie will allocate a basis of $15,000 each to the two land parcels,and her basis in her partnership interest will be reduced to $0.

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.

A gain will only arise on a distribution of cash that exceeds the partner's basis in the partnership interest.For this purpose,only cash,checks,and credit card charges are treated as cash.

The RST Partnership makes a proportionate distribution of its assets to Ryan,in complete liquidation of his partnership interest.The distribution consists of $40,000 in cash and capital assets with a basis to the partnership of $30,000 and a fair market value of $48,000.None of the payment is for partnership goodwill.At the time of the distribution,Ryan's partnership basis is $45,000 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:

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.

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)?