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

Question 1

In a current nonliquidating) distribution, loss never is recognized.

Answer 1

True

Question 2

In a proportionate current nonliquidating) distribution, cash is deemed to be distributed first followed by capital and §
1231 assets, and last, unrealized receivables and inventory.

Answer 2

False

Question 3

Lori, a partner in the JKL partnership, received a proportionate current 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.

Answer 3

True

Question 4

Carl's basis in his LLC interest is $10,000. In a current nonliquidating) distribution, Carl receives land basis =
$10,000; fair market value = $12,000); and inventory basis = $6,000; fair market value = $8,000). Carl takes a
$10,000 basis in the land and a $0 basis in the inventory, and has a $0 basis in the LLC interest.

Question 5

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

Question 6

Generally, a distribution of property does not result in a gain to a partner on either a current or liquidating distribution.
A situation in which a gain may arise, however, is when a partner contributed appreciated property to the partnership and that property is distributed back to that same contributing partner within seven years of the contribution.

Question 7

Randi owns a 40% interest in the capital and profits of the RAY Partnership. Immediately before she receives a proportionate current nonliquidating) distribution from RAY, the basis for her partnership interest is $60,000. The distribution consists of $45,000 in cash and land with a fair market value of $72,000. RAY's adjusted basis in the land immediately before the distribution is $36,000. As a result of the distribution, Randi recognizes a gain of $57,000.

Question 8

Matt, a partner in the MB Partnership, receives a proportionate, current 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 recognize no gain or loss. He takes a $10,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Question 9

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.

Question 10

A gain arises only on a distribution from a partnership 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.

Question 11

Scott owns a 30% interest in the capital and profits of the SOS Partnership. Immediately before he receives a proportionate current 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.

Question 12

A cash distribution from a partnership to a partner generally is taxable to the partner.

Question 13

Tim and Darby are equal partners in the TD Partnership. Partnership income for the year is $60,000. Tim needs cash 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 but no cash or other property to
Darby.

Question 14

Anna and Brad are equal partners in the AB LLC. If AB distributes $10,000 of cash to Anna and a capital asset valued at $10,000 to Brad, and if both Anna and Brad continue to be members of the LLC, the distribution is classified as a proportionate current distribution.

Question 15

Marcie is a 40% member of the M&A LLC. Her basis is $10,000 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, current nonliquidating) distribution, Marcie recognizes a gain of $20,000 and her basis in the land is
$0.

Question 16

The ELF Partnership distributed $20,000 cash to Emma in a proportionate, current nonliquidating) distribution.
Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

Question 17

A distribution can be proportionate even if only one partner receives assets from the partnership.

Question 18

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

Question 19

Generally, no gain is recognized on a proportionate liquidating or current nonliquidating) distribution of noncash property, even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Question 20

In a proportionate current 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.

Question 21

Two years ago, Marcus contributed land with a basis of $6,000 and a fair market value of $20,000 in exchange for a
30% interest in the MNO LLC. This year when the value was $25,000, that property was distributed to Jamal whose basis in the LLC interest was $50,000 before the distribution. Marcus recognizes a gain of $14,000 and increases his basis in his LLC interest by that same amount; Jamal takes a $20,000 basis in the distributed property.

Question 22

Mark contributed property to the MDB Partnership in year 1. At the time of the contribution, the basis in the
property was $40,000 and its value was $50,000. In year 5, MDB distributed that property to partner Dara. Because this is a distribution of precontribution gain property, Dara may be required to recognize a gain.

Question 23

Midway through the current tax year, Georgie sells her 40% interest in the GHI Partnership to new partner Kelly for
$150,000, including Georgie's share of partnership liabilities. At the beginning of the tax year, Georgie's basis in her partnership interest was $40,000 excluding her share of partnership debt). The partnership reported income of
$120,000 for the year, and Georgie's share of partnership debt was $50,000 at the sale date. Assume that the partnership uses a monthly proration of income.) On the sale date, the partnership's assets consist of cash $195,000), land basis of $90,000, fair market value of $120,000), and unrealized receivables basis of $0, fair
market value of $60,000). Georgie will recognize ordinary income of $24,000 and a capital gain of $12,000, for a total of $36,000 on the sale.

Question 24

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000. His basis in his partnership interest was $15,000 immediately before the distribution. Carlos assigns a basis of $7,000 to the inventory and recognizes no gain or loss.

Question 25

If one partner in a two-partner partnership dies, the estate cannot be a partner, so the partnership is terminated.

Question 26

The Crimson Partnership is a service-providing consulting firm, and Jana is a 20% general partner with a $100,000 basis in her partnership interest. Crimson's assets consist of unrealized receivables basis of $0, fair market value of
$400,000), cash of $300,000, and land basis of $200,000, fair market value of $300,000). If Crimson distributes
$200,000 of cash to Jana in liquidation of her interest in the partnership and Crimson does not liquidate), Jana will recognize ordinary income of $80,000 and a capital gain of $20,000.

Question 27

In a liquidating distribution that liquidates the partnership, each partner recognizes gain or loss equal to the difference between the value of assets received less the partner's basis in the partnership interest.

Question 28

In a proportionate liquidating distribution, WYX Partnership distributes to partner William cash of $40,000, cash basis accounts receivable basis of $0, fair market value of $10,000), and land basis of $30,000, fair market value of
$50,000). William's basis was $80,000 before the distribution. On the liquidation, William recognizes a $20,000 gain, and he takes a basis of $10,000 in the accounts receivable and $50,000 in the land.

Question 29

James received a distribution of $110,000 cash in liquidation of his 25% managing general partner) interest in the JKL LLP. JKL is a service-oriented entity. Before the distribution, the LLP's assets consisted of $200,000 cash, land basis of $40,000, value of $100,000), unrealized receivables basis of $0, value of $100,000), and goodwill basis of
$0, value of $40,000). James negotiated the $10,000 portion of the payment that is for goodwill; the partnership agreement does not address payments to retiring partners for goodwill. James will recognize $35,000 of ordinary income from his §736a) payment; the remaining $75,000 distribution is treated as a § 736b) property payment for his partnership interest.

Question 30

Taylor's basis in his partnership interest is $140,000, including his $60,000 share of partnership debt. Sandy buys Taylor's partnership interest for $100,000 cash, and she assumes Taylor's $60,000 share of the partnership's debt. If the partnership owns no hot assets, Taylor will recognize a capital loss of $40,000.

Question 31

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 land basis of $1,000, fair market value of
$10,000; treated as a capital asset by the partnership). Immediately before the distribution, Ralph's basis in the partnership interest was $40,000. Ralph realizes and recognizes a loss of $9,000, and his basis is $0 in the accounts receivable and $1,000 in the land.

Question 32

Several years ago, the Jaymo Partnership purchased 2,000 shares of ABCO stock publicly traded) for $40,000; the stock now has a fair market value of $90,000. Jaymo owns no other securities. If this stock is distributed to Jason in liquidation of his 30% partnership interest, a portion of the distribution is treated as a cash distribution, and, because the security is appreciated, a portion is treated as a property distribution.

Question 33

In addition to its other assets, BC LLC owns unrealized receivables basis = $0, fair market value = $60,000). If BC
distributes $60,000 cash to Bart and the unrealized receivable to Charles, then Bart will recognize ordinary income of
$30,000 and Charles will have a basis of $30,000 in receivables valued at $60,000.

Question 34

Nick sells his 25% interest in the LMNO Partnership to new partner Katrina for $67,500. The partnership's assets consist of cash $100,000), land basis of $90,000, fair market value of $110,000), and inventory basis of $40,000, fair market value of $60,000). Nick's basis in his partnership interest was $57,500. On the sale, Nick will recognize ordinary income of $5,000 and a capital gain of $5,000.

Question 35

Cynthia's basis in her LLC interest was $60,000, including her $40,000 share of the LLC's debt. In a proportionate liquidating distribution in which the LLC also liquidates, Cynthia receives cash of $50,000, and inventory with a basis of $3,000 and a fair market value of $5,000. Before the partnership liquidates, it repays all of its liabilities. Cynthia recognizes a gain of $30,000 on the distribution and takes a basis of $0 in the inventory.

Question 36

Zach's partnership interest basis is $100,000. Zach receives a proportionate, liquidating distribution from a liquidating partnership of $50,000 cash and inventory having a basis of $20,000 to the partnership and a fair market value of
$30,000. Zach assigns a basis of $20,000 to the inventory and recognizes a $30,000 loss.

Question 37

Normally a distribution of property from a partnership does not result in gain recognition. However, a distribution of marketable securities may be treated in part as a distribution of cash that could result in gain recognition.

Question 38

The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership also liquidated: $25,000 cash, land parcel A basis of $5,000, fair market value of $30,000) and land parcel B basis of $5,000, fair market value of $15,000). James's basis in his partnership interest was $85,000 immediately before the distribution. James will allocate bases of $40,000 to parcel A and $20,000 to parcel B, and he will have no remaining basis in his partnership interest.

Question 39

In a proportionate liquidating distribution, RST Partnership distributes to partner Riley cash of $30,000, accounts receivable basis of $0, fair market value of $40,000), and land basis of $65,000, fair market value of $50,000). Riley's basis was $40,000 before the distribution. On the liquidation, Riley recognizes a gain of $0, and her basis is
$10,000 in the land and $0 in the accounts receivable.

Question 40

A payment to a retiring general partner for his or her share of goodwill of a partnership in which capital is a material income-producing factor is classified as a § 736a) 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.

Question 41

Dan receives a proportionate current nonliquidating) distribution when the basis of his partnership interest is $30,000. The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500. Dan's basis in the noncash property is:

A) $26,500.
B) $24,000.
C) $20,000.
D) $10,000.
E) $0.

Question 42

Jeremiah received a proportionate nonliquidating distribution of land from the JZ Partnership. The land had a fair market value of $65,000 and a basis to the partnership of $50,000. The land was held for investment purposes by the partnership. Jeremiah's basis in his partnership interest immediately before the distribution was $40,000. The partnership's only remaining assets were cash, another parcel of land, and a building on that land. If the partnership has a § 754 election in effect, it will record a $10,000 step-up; a portion of the step-up will be allocated to the building and will be depreciated; and the step-up and any related depreciation expense will be allocated among all the
partners in the partnership.

Question 43

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

Question 44

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

Question 45

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 basis of partnership assets exceeds their value by more than $250,000 even if a § 754 election is not in effect.

Question 46

Orson was a 40% partner in the calendar year ORP LLC. When Orson died on June 30, the interest transferred to his estate. On October 1 of that year, Yolanda, an unrelated third party, acquired Orson's interest from his estate with the approval of the other LLC members). The LLC's operating agreement provides that a monthly allocation annual income divided by 12) will be used to prorate income when required. For the year, the LLC will issue three Schedules K-1 related to this interest: 1) 20% of the year's income to Orson, 2) 10% to Orson's Estate, and 3)
10% to Yolanda.

Question 47

Mark receives a proportionate current nonliquidating) distribution. At the beginning of the partnership year, the basis of his partnership interest is $100,000. During the year, he received a cash distribution of $40,000 and a property distribution basis of $30,000, fair market value of $25,000). In addition, Mark's share of partnership liabilities was reduced by $10,000 during the year. How much gain or loss does Mark recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?

A) $25,000 loss; $25,000 basis in property; $0 remaining basis.
B) $30,000 loss; $30,000 basis in property; $0 remaining basis.
C) $0 gain or loss; $25,000 basis in property; $25,000 remaining basis.
D) $0 gain or loss; $30,000 basis in property; $20,000 remaining basis.
E) $0 gain or loss; $30,000 basis in property; $30,000 remaining basis.

Question 48

A § 754 election is made for a tax year in which the partner recognizes gain or loss on a distribution from the partnership or the distributee partner's basis in distributed property is increased or decreased from the inside basis the partnership held in those assets. The election is made by the partnership each year in which it is necessary to
adjust a partner's share of the inside basis of partnership assets; in a year in which an unfavorable result would arise, the partnership can forgo making the election.

Question 49

A partnership has accounts receivable with a basis of $0 and a fair market value of $30,000 and depreciation recapture potential of $20,000. All other assets of the partnership are either cash, capital assets, or § 1231 assets. If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner is required to recognize ordinary income of $12,000.

Question 50

Bob received a proportionate current nonliquidating) distribution of land from the BZ Partnership. The land had a
fair market value of $15,000 and a basis to the partnership of $10,000. The land was held for investment purposes by the partnership. Bob's basis in his partnership interest immediately before the distribution was $6,000. If the partnership has a § 754 election in effect, it will record a $4,000 step-down in the basis of remaining assets, and the step-down will be attributed to all partners in the partnership.

Question 51

Jeremy sold his 40% interest in the HIJ Partnership to Ashley for $400,000. The inside basis of all partnership assets was $600,000 at the time of the sale. If the partnership makes a § 754 election, it will record a $160,000 step-up in the basis of the partnership assets, and the step-up will be attributed solely to Ashley.

Question 52

At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000. She receives a proportionate current nonliquidating) distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable basis of $0, fair market value $40,000), and land basis of $30,000, fair market value of $50,000). After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are:

A) $0; $30,000; and $50,000.
B) $0; $50,000; and $30,000.
C) $40,000; $30,000; and $10,000.
D) $40,000; $40,000; and $0.
E) $40,000; $50,000; and $0.

Question 53

A general partnership can convert to either limited liability partnership or limited liability company status with no federal income tax liability; conversion of a C corporation to a partnership, however, would result in tax on any built- in gains.

Question 54

A two-person partnership terminates when one partner sells his, her, or its partnership interest to the other partner.
This termination triggers a deemed liquidating distribution to the partners, and a tax on the realized gain fair market value less partnership basis) in the partnership's assets.

Question 55

A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts.

Question 56

GHI Partnership is owned 60% by Greg and 20% each by Howard and Isaac. Greg wants to dispose of his partnership interest for $100,000, including $20,000 for partnership goodwill. A goodwill payment to a retiring partner is not provided for in the partnership agreement). The partnership owns no hot assets. Greg will have the same tax result if he sells his interest to Howard and Isaac for $50,000 each $100,000 total), or if GHI redeems Greg's
interest by distributing $100,000 of cash to Greg.

Question 57

Fred and Wilma formed the equally owned FW partnership several years ago. On the last day of the prior tax year, they each transferred a 20% interest in the FW partnership a capital-intensive business) to their son, Rocky 40% total to Rocky; Fred and Wilma each retained 30% interests). For the current tax year, FW reported income of
$200,000. Fred provides services to the partnership valued at $60,000; Wilma and Rocky provide no services. The
$200,000 of income will be allocated $102,000 to Fred, $56,000 to Rocky, and $42,000 to Wilma.

Question 58

In the year that a donor gives a partnership interest to a donee, their share of the partnership's income is prorated between the donor and donee.

Question 59

Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate current nonliquidating) distribution consisting of land held for investment basis of $100,000, fair market value of $130,000) and inventory basis of $80,000, fair market value of $70,000). After the distribution, Megan's bases in the received assets are, respectively:

A) $100,000 land) and $20,000 inventory).
B) $120,000 land) and $0 inventory).
C) $50,000 land) and $70,000 inventory).
D) $40,000 land) and $80,000 inventory).
E) $130,000 land) and $70,000 inventory).

Question 60

Beth sold her 25% partnership interest to Katie for $50,000 cash on July 1 the halfway point) of the current tax year. Katie also assumed Beth's share of the partnership's liabilities. Beth's basis in her partnership interest at the beginning of the year was $40,000, including a $15,000 share of partnership liabilities. The partnership's income for the entire year was $100,000, and Beth's share of partnership debt was $10,000 as of the date she sold the partnership interest. Assume the calendar year partnership has no hot assets, all of its income is earned evenly throughout the year, and the partnership uses the monthly proration method to allocate its income among the partners. Beth recognizes a gain of $12,500 on the sale.

Question 61

Jack has a basis in a partnership interest of $300,000, including his $80,000 share of partnership debt. At the end of the current year, the partnership pays off its liabilities and makes a proportionate current nonliquidating) distribution to its partners. Jack receives a parcel of land partnership basis = $120,000, value = $135,000) and inventory partnership basis = $160,000, value = $180,000). Following the distribution, what is Jack's basis in the land, inventory, and the partnership interest?

A) $120,000 basis in land, $160,000 basis in inventory, $20,000 basis in partnership interest.
B) $40,000 basis in land, $180,000 basis in inventory, $0 basis in partnership interest.
C) $60,000 basis in land, $160,000 basis in inventory, $0 basis in partnership interest.
D) $135,000 basis in land, $165,000 basis in inventory; $0 basis in partnership interest.
E) $60,000 basis in land, $160,000 basis in inventory; $80,000 basis in partnership interest.

Question 62

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

A) $40,000 land); $40,000 inventory).
B) $40,000 land); $10,000 inventory).
C) $10,000 land); $40,000 inventory).
D) $25,000 land); $25,000 inventory).
E) $60,000 land); $40,000 inventory).

Question 63

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

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 distribution of inventory property that is proportionate to the partners.

Question 64

Beth has an outside basis of $100,000 in the BJDE Partnership as of December 31 of the current year. On that date the partnership liquidates and distributes to Beth a proportionate distribution of $50,000 cash and inventory with an inside basis to the partnership of $10,000 and a fair market value of $16,000. In addition, Beth receives an antique desk not inventory) that has an inside basis and fair market value) of $5,000. 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?

A) $40,000 loss; $0 basis.
B) $35,000 loss; $5,000 basis.
C) $0 gain or loss; $5,000 basis.
D) $0 gain or loss; $34,000 basis.
E) $0 gain or loss; $40,000 basis.

Question 65

Misha receives a proportionate current nonliquidating) distribution when the basis of his partnership interest is $60,000. The distribution consists of $80,000 cash and inventory adjusted basis to the partnership of $10,000, fair market value of $20,000). How much gain or loss does Misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

A) $0 gain or loss; $10,000 basis in inventory; $0 basis in partnership interest.
B) $0 gain or loss; $20,000 basis in inventory; $50,000 basis in partnership interest.
C) $20,000 capital gain; $0 basis in inventory; $0 basis in partnership interest.
D) $20,000 capital gain; $10,000 basis in inventory; $0 basis in partnership interest.
E) $20,000 ordinary income; $0 basis in inventory; $20,000 basis in partnership interest.

Question 66

Landis received $90,000 cash and a capital asset basis of $50,000, fair market value of $60,000) in a proportionate liquidating distribution. His basis in his partnership interest was $120,000 prior to the distribution. How much gain or loss does Landis recognize, and what is his basis in the asset received?

A) $0 gain or loss; $30,000 basis.
B) $0 gain or loss; $50,000 basis.
C) $0 gain or loss; $60,000 basis.
D) $20,000 gain; $50,000 basis.
E) $30,000 gain; $60,000 basis.

Question 67

Jonathon owns a one-third interest in a liquidating partnership. Immediately before the liquidation, his basis in the partnership interest is $60,000. The partnership distributes cash of $32,000 and two parcels of land each with a fair market value of $10,000). Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000. Jonathon's basis in the two parcels of land is:

A) Parcel A, $2,000; Parcel B, $6,000.
B) Parcel A, $7,000; Parcel B, $21,000.
C) Parcel A, $10,000; Parcel B, $10,000.
D) Parcel A, $14,000; Parcel B, $14,000.
E) Parcel A, $15,000; Parcel B, $45,000.

Question 68

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?

A) $0 basis in inventory; $25,000 basis in land; $0 gain or loss.
B) $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss.
C) $16,000 basis in inventory; $25,000 basis in land; $9,000 loss.
D) $18,000 basis in inventory; $32,000 basis in land; $0 gain or loss.
E) $16,000 basis in inventory; $25,000 basis in land; $39,000 loss..

Question 69

Janella's basis in her partnership interest was $120,000, including her $150,000 share of partnership debt. At the end of the current year, the partnership pays off its debts and liquidates. Janella receives a proportionate liquidating distribution consisting of $42,000 cash and inventory valued at $24,000 adjusted basis to the partnership = $20,000). How much gain or loss does Janella recognize, and what is her basis in the distributed property?

A) $0 gain or loss; $78,000 basis in property.
B) $58,000 capital loss; $20,000 basis in property.
C) $30,000 capital gain; $24,000 basis in property.
D) $72,000 capital gain; $20,000 basis in property.
E) $72,000 capital gain; $0 basis in property.

Question 70

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). Her 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) $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 71

Frank receives a proportionate current nonliquidating) distribution from the AEF Partnership. The distribution consists of $10,000 cash and property adjusted basis to the partnership of $54,000 and fair market value of $60,000). Immediately before the distribution, Frank's adjusted basis in the partnership interest was $50,000. His basis in the noncash property received is:

A) $0.
B) $40,000.
C) $50,000.
D) $54,000.
E) $60,000.

Question 72

Which of the following statements correctly reflects one of the rules regarding proportionate liquidating distributions?

A) Relief of liabilities is treated as a distribution of cash but only to the extent that the cash distribution does not exceed the partner's basis in the partnership interest.
B) A partner's basis in distributed unrealized receivables is the lesser of the partnership's basis in the receivables or their fair market value.
C) The basis of unrealized receivables cannot be stepped up to their fair market value unless the partner has adequate unabsorbed basis.
D) Assets are deemed distributed in the following order: cash, unrealized receivables and inventory, and finally, capital assets.
E) The partner can recognize gain but not loss on a proportionate liquidating distribution.

Question 73

Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current nonliquidating) distribution, cash of $20,000, inventory basis to the partnership of $30,000 and fair market value of $40,000), and land basis to the partnership of $40,000 and fair market value of $42,000). In addition, Mack's share of partnership debt decreased by
$12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest
Including debt share) following the distribution?

A) $30,000 basis in inventory; $40,000 basis in land, $98,000 basis in partnership.
B) $30,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.
C) $40,000 basis in inventory; $40,000 basis in land, $86,000 basis in partnership.
D) $40,000 basis in inventory; $42,000 basis in land, $98,000 basis in partnership.
E) $40,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.

Question 74

Last year, Darby contributed land basis of $60,000, fair market value of $80,000) to the Seagull LLC in exchange for a 25% interest in the LLC. In the current year, the LLC distributes the land now worth $82,000) to Shelby, who is also a 25% owner. Immediately prior to the distribution, Darby's basis in the LLC was $70,000, and Shelby's basis in the LLC was $110,000. How much gain or loss must be recognized and by whom? What is Shelby's basis in the property she receives and Darby's basis in her partnership interest following the distribution?

A) No gain or loss; Shelby's basis in the property is $80,000; Darby's basis in interest is $70,000.
B) $20,000 gain recognized by Darby; Shelby's basis in the property is $80,000; Darby's basis in interest is $90,000.
C) $22,000 gain recognized by Darby; Shelby's basis in the property is $82,000; Darby's basis in interest is $92,000.
D) $20,000 gain recognized by Shelby; Shelby's basis in the property is $80,000; Darby's basis in interest is $90,000.
E) $22,000 gain recognized by Shelby; Shelby's basis in the property is $82,000; Darby's basis in interest is $92,000.

Question 75

Nicky's basis in her partnership interest was $150,000, 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. Nicky receives $30,000 cash and inventory with a $50,000 basis and a $58,000 fair market value to the partnership. What loss does Nicky recognize, and what is her basis in the inventory?

A) $70,000 loss; $50,000 basis.
B) $30,000 loss; $50,000 basis.
C) $22,000 loss; $58,000 basis.
D) $62,000 loss; $58,000 basis.
E) $0 loss; $80,000 basis.

Question 76

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property adjusted basis to the partnership of $10,000 and fair market value of $12,000). The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

A) $0 gain or loss; $10,000 basis in property.
B) $0 gain or loss; $50,000 basis in property.
C) $8,000 ordinary income; $0 basis in property.
D) $8,000 capital gain; $10,000 basis in property.
E) $8,000 capital gain; $0 basis in property.

Question 77

Anthony's basis in the WAM Partnership interest was $200,000 just before he received a proportionate liquidating distribution consisting of investment land basis of $90,000, fair market value of $100,000), and inventory basis of $30,000, fair market value of $70,000). After the distribution, Anthony's recognized gain or loss and his basis in the land and inventory are:

A) $80,000 loss; $90,000 land); $30,000 inventory).
B) $70,000 loss; $100,000 land); $30,000 inventory).
C) $30,000 loss; $100,000 land); $70,000 inventory).
D) $30,000 loss; $90,000 land); $30,000 inventory).
E) $0 gain or loss; $170,000 land); $30,000 inventory).

Question 78

Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate current nonliquidating) distribution, the partnership also distributed property basis of $20,000, fair market value of $30,000) to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:

A) No gain or loss.
B) Ordinary loss of $5,000.
C) Capital loss of $5,000.
D) Ordinary gain of $5,000.
E) Capital gain of $5,000.

Question 79

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable basis of $0, fair market value of $40,000), and land basis of $40,000, fair market value of $50,000). In addition, the partnership repays all liabilities of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

A) $0 basis in accounts receivable; $30,000 basis in land; $20,000 gain.
B) $0 basis in accounts receivable; $0 basis in land; $40,000 gain.
C) $0 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
D) $40,000 basis in accounts receivable; $20,000 basis in land; $20,000 gain.
E) $40,000 basis in accounts receivable; $20,000 basis in land; $100,000 gain.

Question 80

In a proportionate liquidating distribution, Sam receives a distribution of $30,000 cash, accounts receivable basis of $0, fair market value of $50,000), and land basis of $20,000, fair market value of $50,000). In addition, the partnership repays all liabilities of which Sam's share was $40,000. Sam's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sam's basis in the accounts receivable and land, and how much gain or loss does he recognize?

A) $0 basis in accounts receivable; $50,000 basis in land; $0 gain or loss.
B) $0 basis in accounts receivable; $90,000 basis in land; $0 gain or loss.
C) $50,000 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
D) $50,000 basis in accounts receivable; $50,000 basis in land; $50,000 gain.
E) $0 basis in accounts receivable; $70,000 basis in land; $30,000 loss.