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

Sam receives a proportionate nonliquidating distribution when the basis of his partnership interest is $40,000.He received a cash distribution of $25,000 and a property distribution (basis of $10,000 and fair market value of $12,000).In addition,Sam's share of partnership liabilities was reduced by $20,000 during the year.How much gain or loss does Sam recognize;what is his basis in the property he received;and what is his remaining basis in the partnership interest?

Terri's basis in her partnership interest was $120,000,including her $40,000 share of partnership liabilities.The partnership decides to liquidate,and after repaying all liabilities,distributes all remaining assets proportionately to the partners.Terri receives $30,000 cash and accounts receivable with a $20,000 basis and a $22,000 fair market value to the partnership.What gain or loss does Terri recognize,and what is her basis in the accounts receivable?

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?

On August 31 of the current tax year,the balance sheet of the RBD General Partnership is as follows: On that date,Rachel sells her one-third partnership interest to Bill for $300,000,including cash and relief of Rachel's share of the nonrecourse debt.The nonrecourse debt is shared equally among the partners.Rachel's outside basis for her partnership interest is $250,000.How much capital gain and/or ordinary income will Rachel recognize on the sale?

A partnership is required to make a downward adjustment to the basis of its assets if a partnership interest is sold and if the total decline in value of partnership assets is more than $250,000.

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 the year a donor gives a partnership interest to a donee,the partnership's transactions are allocated to and reported by the donee.

Marty receives a proportionate nonliquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000;fair market value of $23,000).How much gain or loss does Marty recognize,and what is her basis in the distributed property and in her partnership interest following the distribution?

Wendy receives a proportionate nonliquidating distribution from the WXY Partnership.The distribution consists of $75,000 cash and property with an adjusted basis to the partnership of $20,000 and a fair market value of $25,000.Immediately before the distribution,Wendy's adjusted basis for her partnership interest is $90,000.Wendy's basis in the noncash property received is:

The December 31,2010,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 31,2010,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?

In a proportionate liquidating distribution in which the partnership is also liquidated,Ralph received cash of $30,000,accounts receivable (basis of $0 and fair market value of $20,000),and a desk (basis of $0 and fair market value of $1,000).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 desk.

Barry owns a 25% interest in a continuing partnership.The partnership distributes a $20,000 year-end cash bonus to all the partners.In a proportionate nonliquidating distribution,the partnership also distributed property (basis of $2,000;fair market value of $3,000)to Barry.Immediately before the distribution,Barry's basis in the partnership interest was $30,000.As a result of the distribution,Barry recognizes:

In a proportionate liquidating distribution,Barbara receives a distribution of $40,000 cash,accounts receivable (basis of $0 and fair market value of $20,000),and land (basis of $20,000 and fair market value of $30,000).In addition,the partnership repays all liabilities,of which Barbara's share was $40,000.Barbara's basis in the entity immediately before the distribution was $50,000.As a result of the distribution,what is Barbara's basis in the accounts receivable and land,and how much gain or loss does she recognize?

Catherine's basis was $50,000 in the CAR Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $40,000,fair market value of $60,000)and inventory (basis of $40,000,fair market value of $40,000).After the distribution,Catherine's bases in the land and inventory are,respectively:

Your client has operated a sole proprietorship for several years,and is now interested in raising capital for expansion.He is considering forming either a C corporation or an LLC.

A partnership has accounts receivable with a basis of $0 and a fair market value of $10,000 and depreciation recapture potential of $15,000.All other assets of the partnership are either cash,capital assets,or § 1231 assets.If a purchaser acquires a 30% interest in the partnership from another partner,the selling partner will be required to recognize ordinary income of $7,500.

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.

Rex and Scott operate a law practice in partnership form.Since Rex and Scott are brothers,the partnership is subject to the family partnership income reallocation rules.

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.

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?