Question 1

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.

Accepted Answer

A) True 
 B)False  True

Question 2

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.

Accepted Answer

b

Question 3

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

Accepted Answer

l

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

The answer of Match the following statements with the best...

Question 6

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

Accepted Answer

The answer of Match the following statements with the best...

Question 7

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

Accepted Answer

The answer of Match the following statements with the best...

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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.)

Accepted Answer

A)   $0 gain or loss.
B)   $2,000 loss.
C)   $2,000 gain.
D)   $8,000 gain.
E)   $10,000 gain.

Question 10

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?

Accepted Answer

The answer of Susan is a one-fourth limited partner in...

Question 11

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.

Accepted Answer

The answer of Match the following independent descriptions as "hot"...

Question 12

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?

Accepted Answer

A)   If capital is NOT a material income­producing factor to the partnership, the § 736(a)  payment will be $2,500.
B)   If capital IS a material income­producing factor, the entire $60,000 payment will be a § 736(b)  property payment.
C)   The payment for Ted's share of goodwill will create $2,500 of ordinary income to him.
D)   The partnership can deduct any amount that is a § 736(a)  payment because it will be determined without regard to partnership profits.
E)   All statements are false.

Question 13

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 does not close with respect to a partner who transfers a partnership interest at death; all amounts are allocated to the successor.
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 between the donor and the donee.
E)   All of the above are true statements.

Question 14

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

Accepted Answer

The answer of Match the following statements with the best...

Question 15

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 five­partner 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 16

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

Accepted Answer

The answer of Match the following statements with the best...

Question 17

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?

Accepted Answer

A)   $0 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
B)   $0 basis in accounts receivable; $80,000 basis in inventory; $0 gain or loss.
C)   $40,000 basis in accounts receivable; $40,000 basis in inventory; $0 gain or loss.
D)   $30,000 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
E)   $30,000 basis in accounts receivable; $60,000 basis in inventory; $10,000 gain.

Question 18

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)?

Accepted Answer

A)   $6,000
B)   $17,000
C)   $23,000
D)   $33,000
E)   None of the above

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

The answer of Match the following statements with the best...

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.

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

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

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