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

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Question 1

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The December 31,2012,balance sheet of DBW,LLP,a service-providing partnership is as follows: The partners share equally in partnership capital,income,gain,loss,deduction,and credit.Capital is not a material income-producing factor to the partnership.On December 31,2012,partner Dana (who is an active managing partner in the partnership)receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736.Dana's outside basis for the partnership interest immediately before the distribution is $90,000.How much is Dana's gain or loss on the distribution and what is its character?

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The payment for Dana's share of the unre...

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Question 2

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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;$0 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.

F) A) and B)
G) C) and E)

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Question 3

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Which of the following statements,if any,about an LLC is false?

George is planning to retire from the GDP LLC,where he is an active managing member owning a 60% interest.Capital is not a material income-producing factor to GDP.The LLC can either redeem his interest under § 736 or he can sell his interest to Dale,who currently owns a 20% interest.The LLC's operating agreement is silent regarding treatment of goodwill.As to George's alternatives,which one of the following statements is true?

The December 31,2012,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 31,2012,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?

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.

A distribution cannot be "proportionate" if only one partner receives assets from the partnership.

The Crimson Partnership is a service provider.Its 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).Assume 20% general partner Jana has a basis in her partnership interest of $100,000.If the ongoing partnership distributes $200,000 of cash to Jana in liquidation of her interest in the partnership,she will recognize ordinary income of $80,000 and a capital gain of $20,000.

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 Lisa 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 (including her share of partnership debt).How much capital gain and/or ordinary income will Rachel recognize on the sale?

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

Hannah sells her 25% interest in the HIJK Partnership to Alyssa for $120,000 cash.At the end of the year prior to the sale,Hannah's basis in HIJK was $70,000.The partnership allocates $15,000 of income to Hannah for the portion of the year she was a partner.On the date of the sale,the partnership assets and the agreed fair market values were as follows. Determine the amount and character of any gain that Hannah recognizes on the sale.

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

Bob received a proportionate 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.

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

Randi owns a 40% interest in the capital and profits of the RAY Partnership.Immediately before she receives a proportionate 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 $21,000.

Which of the following is not typically considered to be a "hot asset?"

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.

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

Melissa is a partner in a continuing partnership.At the end of the current year,the partnership makes a proportionate,nonliquidating distribution to Melissa of $50,000 cash,inventory (basis of $22,000,fair market value of $20,000),and land (basis of $30,000,fair market value of $60,000).Melissa's basis in the partnership interest was $90,000 before the distribution.What is Melissa's basis in the inventory,land,and partnership interest following the distribution?

The December 31,2012,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 31,2012,Jan sells her 1/3 partnership interest to Jennifer for $43,000 cash.Assume the partnership makes a § 754 election for 2012.