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

Question 1

Manny has an outside basis of $180,000 in the MNO Partnership as of December 31 of the current year.On that date the partnership liquidates and distributes to Manny a proportionate distribution of $130,000 cash and inventory with an inside basis to the partnership of $20,000 and a fair market value of $30,000.In addition, Manny receives a desk which has an inside basis and fair market value of $1,400 and $3,600, respectively.None of the distribution is for partnership goodwill.How much gain or loss will Manny recognize on the distribution, and what basis will he take in the desk?

A)$28,600 loss; $1,400 basis.
B)$26,400 loss; $3,600 basis.
C)$16,400 loss; $3,600 basis.
D)$0 loss; $30,000 basis.
E)None of the above.

Answer 1

D

Question 2

Robin's interest in the equal Prairie Partnership is sold to Tyler for $105,000 cash.On the date of the sale, the partnership tax balance sheet and the agreed fair market values were as follows. $\begin{array}{lcc}&\text { Adjusted }\\&\text { Basis } & \text { FMV } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\\text { Inventory } & 160,000 & 60,000 \\\text { Other assets } & 100,000 & 120,000\\&\$440,000&\$360,000\\\\\text { Robin, capital } & \$ 110,000 & \$ 90,000 \\\text { Croix, capital } & 110,000 & 90,000 \\\text { Nassau, capital } & 110,000 & 90,000 \\\text { Bermuda, capital } & 110,000 & 90,000\\&\$440,000&\$360,000\end{array}$ Assume Robin's basis for his partnership interest equals his capital account.As a result of the sale, Robin recognizes

A)No gain or loss.
B)$5,000 capital loss.
C)$25,000 ordinary loss.
D)$5,000 capital gain.
E)$25,000 ordinary loss and $20,000 capital gain.

Answer 2

$25,000 ordinary loss and $20,000 capital gain.

Question 3

On December 31 of last year, Jacob gave his son, Joshua, a gift of a 30% interest in a partnership in which capital is a material income-producing factor.For the current calendar year, the partnership's ordinary income was $140,000.Jacob and Joshua were the only partners in the current year.There were no guaranteed payments to partners.Jacob 's services performed for the partnership were worth a reasonable compensation of $40,000 for the current year.Joshua has never performed any services for the partnership.What is Jacob 's distributive share of partnership income for the current year?

A)$110,000.
B)$98,000.
C)$42,000.
D)$30,000.
E)None of the above.

Answer 3

A

Question 4

The Desert Partnership makes a proportionate distribution of its assets to Kenneth, in complete liquidation of his partnership interest.The distribution consists of $60,000 in cash and capital assets with a basis to the partnership of $110,000 and a fair market value of $160,000.None of the payment is for partnership goodwill.At the time of the distribution, Kenneth's partnership basis is $140,000 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:

A)Capital gain of $30,000 and increases the basis of its remaining assets by $30,000.
B)Capital loss of $30,000 and decreases the basis of its remaining assets by $30,000.
C)No gain or loss and increases the basis of its remaining assets by $30,000.
D)No gain or loss and decreases the basis of its remaining assets by $30,000.
E)None of the above.

Question 5

Jose contributed nondepreciable property with a basis of $25,000 and a fair market value of $36,000 to the ABC Partnership in 2008 in exchange for a 40% interest in the partnership.In 2009, he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $9,000 and a fair market value of $40,000.The basis in his partnership interest at the time of the distribution was $20,000.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.)

A)$0 gain or loss.
B)$11,000 gain.
C)$20,000 gain.
D)$31,000 gain.
E)None of the above.

Question 6

Roberto is a partner in a continuing partnership.At the end of the current year, the partnership distributed to Roberto in a proportionate, nonliquidating distribution cash of $50,000, inventory with a basis to the partnership of $45,000 and a fair market value of $60,000, and a parcel of land with a basis to the partnership of $120,000 and a fair market value of $80,000.Roberto's basis in the partnership interest was $240,000 before the distribution.What basis does Roberto take in the inventory and land, and what is his basis in the partnership interest following the distribution?

A)$45,000 basis in inventory; $80,000 basis in land; $65,000 basis in partnership.
B)$45,000 basis in inventory; $120,000 basis in land; $25,000 basis in partnership.
C)$60,000 basis in inventory; $80,000 basis in land; $50,000 basis in partnership.
D)$60,000 basis in inventory; $120,000 basis in land; $10,000 basis in partnership.
E)$60,000 basis in inventory; $120,000 basis in land; $0 basis in partnership.

Question 7

Partner Oliver received a distribution of $60,000 cash from the MNO Partnership in complete liquidation of his partnership interest.If Oliver's outside basis immediately before the distribution was $100,000, and if the partnership has a § 754 election in effect, which of the following statements is true? (Assume the partnership owns no "hot assets.")

A)Oliver will recognize a $40,000 capital loss on the distribution.
B)The partnership will step-up the basis of its assets by $40,000.
C)The partnership is not allowed a step-up adjustment in this situation.
D)The partnership will step-up the basis of its capital and § 1231 assets by $60,000.
E)None of the above.

Question 8

George received $40,000 cash and a capital asset with a basis and fair market value of $15,000 in a proportionate liquidating distribution.His basis in his partnership interest was $70,000 prior to the distribution.How much gain or loss does George recognize, and what is his basis in the capital asset received in the distribution?

A)$0 gain or loss; $15,000 basis.
B)$15,000 loss; $15,000 basis.
C)$15,000 gain; $15,000 basis.
D)$15,000 gain; $30,000 basis.
E)$0 gain or loss; $30,000 basis.

Question 9

On December 31 of last year, Donnie gave his son, Jimmy, a gift of a 30% interest in a partnership in which capital is a material income-producing factor.For the current calendar year, the partnership's ordinary income was $150,000.Donnie and Jimmy were the only partners in the current year.There were no guaranteed payments to partners.Donnie's services performed for the partnership were worth a reasonable compensation of $50,000 for the current year.Jimmy has never performed any services for the partnership.What is Jimmy's distributive share of partnership income for the current year?

A)$120,000.
B)$105,000.
C)$45,000.
D)$30,000.
E)None of the above.

Question 10

Charlie receives a proportionate, nonliquidating distribution from the Forest Partnership.The distribution consists of $20,000 cash and property with an adjusted basis to the partnership of $40,000 and a fair market value of $68,000.Immediately before the distribution, Charlie's adjusted basis for her partnership interest is $85,000.Charlie's basis in the noncash property received is:

A)$20,000.
B)$40,000.
C)$65,000.
D)$68,000.
E)None of the above.