Question 1

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

Accepted Answer

A) The partnership is incorporated. 
B) A 70% interest in partnership capital and profits is sold to a third party purchaser. 
C) Cash is distributed in liquidation of a 60% partner's interest in a five-partner partnership. 
D) A 40% interest in partnership capital and profits is sold to the other partner in a two-partner partnership. 
E) None of the above. 
A) The partnership is incorporated. 
B) A 70% interest in partnership capital and profits is sold to a third party purchaser. 
C) Cash is distributed in liquidation of a 60% partner's interest in a five-partner partnership. 
D) A 40% interest in partnership capital and profits is sold to the other partner in a two-partner partnership. 
E) None of the above.

Question 2

In a proportionate nonliquidating distribution of a capital asset,the partner recognizes gain to the extent the fair market value of the asset exceeds the partnership's basis in the asset.

Accepted Answer

A) True 
 B)False

Question 3

The LMO Partnership distributed $30,000 cash to Laura in a proportionate,nonliquidating distribution.Laura's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution,Laura's basis is reduced to ($5,000)(negative)and she recognizes no gain or loss.

Accepted Answer

A) True 
 B)False

Question 4

Cynthia sells her 1/3 interest in the CAR Partnership to Brandon for $80,000 cash.Brandon also assumed Cynthia's 1/3 share of partnership liabilities.On the date of sale,the partnership balance sheet and agreed-upon fair market values were as follows:
 
If the partnership has a § 754 election in effect,the total "step-up" in basis that Brandon can take in the partnership assets is:

Accepted Answer

A) $85,000. 
B) $55,000. 
C) $50,000. 
D) $45,000. 
E) $20,000. 
A) $85,000. 
B) $55,000. 
C) $50,000. 
D) $45,000. 
E) $20,000.

Question 5

Matt,a partner in the MB Partnership,receives a proportionate,nonliquidating distribution of property having a fair market value of $16,000 and a partnership basis of $23,000.Matt's basis in the partnership is $10,000 before the distribution.In this situation,Matt will take a $10,000 basis in the property,and his basis in the partnership interest is reduced to zero.

Accepted Answer

A) True 
 B)False

Question 6

The MBC Partnership makes a § 736(b)cash payment of $50,000 to partner Betty in liquidation of her interest in the partnership.The partnership owns no hot assets.Betty's basis in her partnership interest before the distribution was $20,000.If the partnership has a § 754 election in effect,it will record a $30,000 decrease in its inside basis in partnership assets,allocable to the remaining partners in the partnership.

Accepted Answer

A) True 
 B)False

Question 7

A disproportionate distribution arises when the partnership distributes a share of partnership hot assets to one or more partners that is not the same as the partner's ownership interest in the partnership.

Accepted Answer

A) True 
 B)False

Question 8

Last year,Oscar contributed nondepreciable property with a basis of $40,000 and a fair market value of $50,000 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 $26,000 and a fair market value of $32,000.The basis in his partnership interest at the time of the distribution was $30,000.How much gain or loss does Oscar recognize on the distribution? (Assume no other distributions have been made to Oscar,the property he originally contributed is still owned by the partnership,and this is not a disguised sale transaction. )

Accepted Answer

A) $0 gain or loss. 
B) $2,000 gain. 
C) $10,000 gain. 
D) $18,000 gain. 
E) $4,000 loss. 
A) $0 gain or loss. 
B) $2,000 gain. 
C) $10,000 gain. 
D) $18,000 gain. 
E) $4,000 loss.

Question 9

A payment to a retiring partner for his or her share of goodwill of a partnership in which capital is 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.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

At the beginning of the year,Elsie's basis in the E&G Partnership interest is $60,000.She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash,unrealized accounts receivable (basis of $0,fair market value $30,000),and inventory (basis of $10,000,fair market value of $20,000).After the distribution,Elsie's bases in the accounts receivable,inventory,and partnership interest are:

Accepted Answer

A) $0;$10,000;and $40,000. 
B) $0;$20,000;and $30,000. 
C) $30,000;$10,000;and $10,000. 
D) $30,000;$20,000;and $0. 
E) None of the above. 
A) $0;$10,000;and $40,000. 
B) $0;$20,000;and $30,000. 
C) $30,000;$10,000;and $10,000. 
D) $30,000;$20,000;and $0. 
E) None of the above.

Question 12

Suzy owns a 25% capital and profits interest in the calendar-year SJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $200,000.On that date,she receives a proportionate nonliquidating current distribution of the following assets:

Accepted Answer

The answer of Suzy owns a 25% capital and profits...

Question 13

The December 31,2010,balance sheet of the calendar-year JKL Partnership reads as follows.
   
Each partner shares in 1/3 of the partnership capital,income,gain,loss,deduction and credit.On December 31,2010,Jan sells her 1/3 partnership interest to Jennifer for $43,000 cash.Assume the partnership makes a § 754 election for 2010.

Accepted Answer

The answer of The December 31,2010,balance sheet of the calendar-year...

Question 14

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

Accepted Answer

A) The seller's adjusted basis for the partnership interest is increased by the seller's share of undistributed partnership income (or reduced by partnership loss)for the portion of the partnership's taxable year ending on the date of the sale. 
B) The partnership taxable year generally closes with respect to a partner who transfers a partnership interest at death. 
C) The amount realized on the sale of a partnership interest is the sum of any money and the fair market value of any property received for the interest,plus the selling partner's share of partnership liabilities under § 752. 
D) With respect to a transfer of a partnership interest by gift,all partnership gain,loss,credit,etc. ,items are allocated to the donor. 
E) All of the above are true statements. 
A) The seller's adjusted basis for the partnership interest is increased by the seller's share of undistributed partnership income (or reduced by partnership loss)for the portion of the partnership's taxable year ending on the date of the sale. 
B) The partnership taxable year generally closes with respect to a partner who transfers a partnership interest at death. 
C) The amount realized on the sale of a partnership interest is the sum of any money and the fair market value of any property received for the interest,plus the selling partner's share of partnership liabilities under § 752. 
D) With respect to a transfer of a partnership interest by gift,all partnership gain,loss,credit,etc. ,items are allocated to the donor. 
E) All of the above are true statements.

Question 15

Carl receives a proportionate nonliquidating distribution when the basis of his partnership interest is $60,000.The distribution consists of $20,000 in cash and property with an adjusted basis to the partnership of $35,000 and a fair market value of $40,000.Carl's basis in the noncash property and his remaining basis in the partnership interest are:

Accepted Answer

A) $60,000;$0. 
B) $35,000;$0. 
C) $35,000;$5,000. 
D) $40,000;$5,000. 
E) None of the above. 
A) $60,000;$0. 
B) $35,000;$0. 
C) $35,000;$5,000. 
D) $40,000;$5,000. 
E) None of the above.

Question 16

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

Accepted Answer

A) A distribution of cash that follows a contribution of appreciated property to the partnership. 
B) A distribution of a slightly appreciated marketable security. 
C) A distribution of property to a partner who,three years ago,contributed other property with a built-in gain. 
D) A distribution to a second partner of property contributed by the first partner two years ago. 
E) A proportionate distribution of inventory property. 
A) A distribution of cash that follows a contribution of appreciated property to the partnership. 
B) A distribution of a slightly appreciated marketable security. 
C) A distribution of property to a partner who,three years ago,contributed other property with a built-in gain. 
D) A distribution to a second partner of property contributed by the first partner two years ago. 
E) A proportionate distribution of inventory property.

Question 17

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:

Accepted Answer

A) Generally applies the election to transfers that take place at any later date,unless the election is revoked. 
B) Only adjusts the basis of its property for differences in basis between that of the partnership and a distributee partner if a transferor-transferee situation arises within two years after the distribution. 
C) Increases the basis of similar retained assets when a distributee partner takes a basis which is greater than the partnership's basis in these assets,assuming the partnership does not have any receivables or inventory. 
D) Decreases the basis of similar retained assets when a distributee partner takes a basis for the distributed assets which is less than the partnership's basis in these assets. 
E) All of the above. 
A) Generally applies the election to transfers that take place at any later date,unless the election is revoked. 
B) Only adjusts the basis of its property for differences in basis between that of the partnership and a distributee partner if a transferor-transferee situation arises within two years after the distribution. 
C) Increases the basis of similar retained assets when a distributee partner takes a basis which is greater than the partnership's basis in these assets,assuming the partnership does not have any receivables or inventory. 
D) Decreases the basis of similar retained assets when a distributee partner takes a basis for the distributed assets which is less than the partnership's basis in these assets. 
E) All of the above.

Question 18

Nick sells his 25% interest in the LMNO Partnership to new partner Nancy for $50,000.The partnership's assets consist of cash ($100,000),land (basis of $60,000;fair market value of $40,000),and inventory (basis of $50,000;fair market value of $60,000).Nick's basis in his partnership interest was $52,500.On the sale,Nick will recognize ordinary income of $2,500 and a capital loss of $5,000.

Accepted Answer

A) True 
 B)False

Question 19

Tina sells her 1/3 interest in the TAX Partnership to James for $60,000 cash plus the assumption of Tina's $4,000 share of partnership debt.On the sale date,the partnership balance sheet and agreed-upon fair market values were as follows:
 
As a result of the sale,Tina recognizes:

Accepted Answer

A) No gain or loss. 
B) $34,000 capital gain. 
C) $38,000 capital gain. 
D) $14,000 ordinary income and $20,000 capital gain. 
E) $14,000 capital gain and $24,000 ordinary income. 
A) No gain or loss. 
B) $34,000 capital gain. 
C) $38,000 capital gain. 
D) $14,000 ordinary income and $20,000 capital gain. 
E) $14,000 capital gain and $24,000 ordinary income.

Question 20

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?

Accepted Answer

A) $0 basis in inventory;$30,000 basis in land;$0 gain or loss. 
B) $12,000 basis in inventory;$18,000 basis in land;$0 gain or loss. 
C) $12,000 basis in inventory;$10,000 basis in land;$8,000 loss. 
D) $14,000 basis in inventory;$30,000 basis in land;$14,000 gain. 
E) $30,000 basis in inventory;$0 basis in land;$0 gain or loss. 
A) $0 basis in inventory;$30,000 basis in land;$0 gain or loss. 
B) $12,000 basis in inventory;$18,000 basis in land;$0 gain or loss. 
C) $12,000 basis in inventory;$10,000 basis in land;$8,000 loss. 
D) $14,000 basis in inventory;$30,000 basis in land;$14,000 gain. 
E) $30,000 basis in inventory;$0 basis in land;$0 gain or loss.

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

In a proportionate nonliquidating distribution of a capital asset,the partner recognizes gain to the extent the fair market value of the asset exceeds the partnership's basis in the asset.

A disproportionate distribution arises when the partnership distributes a share of partnership hot assets to one or more partners that is not the same as the partner's ownership interest in the partnership.

A payment to a retiring partner for his or her share of goodwill of a partnership in which capital is 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.

Suzy owns a 25% capital and profits interest in the calendar-year SJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $200,000.On that date,she receives a proportionate nonliquidating current distribution of the following assets:

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

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

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:

Tina sells her 1/3 interest in the TAX Partnership to James for $60,000 cash plus the assumption of Tina's $4,000 share of partnership debt.On the sale date,the partnership balance sheet and agreed-upon fair market values were as follows: As a result of the sale,Tina recognizes:

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

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

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

In a proportionate nonliquidating distribution of a capital asset,the partner recognizes gain to the extent the fair market value of the asset exceeds the partnership's basis in the asset.

A disproportionate distribution arises when the partnership distributes a share of partnership hot assets to one or more partners that is not the same as the partner's ownership interest in the partnership.

A payment to a retiring partner for his or her share of goodwill of a partnership in which capital is 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.

Suzy owns a 25% capital and profits interest in the calendar-year SJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $200,000.On that date,she receives a proportionate nonliquidating current distribution of the following assets:

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

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

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:

Tina sells her 1/3 interest in the TAX Partnership to James for $60,000 cash plus the assumption of Tina's $4,000 share of partnership debt.On the sale date,the partnership balance sheet and agreed-upon fair market values were as follows: As a result of the sale,Tina recognizes:

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters