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

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Question 31

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Martin has a basis in a partnership interest of $100,000.At the end of the current year,the partnership distributed to Martin,in a proportionate nonliquidating distribution,cash of $10,000,inventory (basis to the partnership of $6,000 and fair market value of $12,000) ,and land (basis to the partnership of $20,000 and fair market value of $15,000) .In addition,Martin's share of partnership debt decreased by $10,000 during the year.What basis does Martin take in the inventory and land and in the partnership interest following the distribution?

A) $6,000 basis in inventory;$15,000 basis in land,$59,000 basis in partnership.
B) $6,000 basis in inventory;$20,000 basis in land,$54,000 basis in partnership.
C) $12,000 basis in inventory;$15,000 basis in land,$53,000 basis in partnership.
D) $12,000 basis in inventory;$20,000 basis in land,$53,000 basis in partnership.
E) $12,000 basis in inventory;$20,000 basis in land,$48,000 basis in partnership.

F) All of the above
G) C) and D)

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Question 32

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Several years ago,the Clarence Partnership purchased 1,000 shares of ABCO stock (publicly traded)for $20,000;the stock now has a fair market value of $50,000.If this stock is distributed to Charlie in liquidation of his 30% partnership interest,it is treated as a cash distribution to the extent of the $50,000 value of the stock.

A) True
B) False

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Question 33

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Cindy,a 20% general partner in the CDE Partnership,wants to retire and has approached the other partners about having the partnership buy her out.The partnership is a cash basis,service oriented partnership in which Cindy is an active partner.The partnership assets consist primarily of unrealized receivables and cash.The partnership also has substantial going concern value (goodwill)which is probably its most valuable asset.The other partners in the partnership are also active in the business and are not related to Cindy. Discuss from Cindy's viewpoint how you would structure the liquidation of her interest under § 736.Answer as if you are her advocate.Do you think the other partners will agree with this structure? If not,what structure would they prefer?

Tim and Janet are equal partners in the TJ Partnership.Partnership income for the year is $20,000.Tim needs cash in order to pay tax on his share of the partnership income,but Janet wants to leave the cash in the partnership for expansion.If the partners agree,it is acceptable for TJ to distribute $5,000 to Tim,and no cash or other property to Janet.

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 $5,000 to the inventory,and recognizes a $2,000 capital loss.

Bradley owns a one-third interest in a liquidating partnership.Immediately before the liquidation,Bradley's basis in the partnership interest is $30,000.The partnership distributes cash of $14,000 and two parcels of land (each with a fair market value of $5,000) .Parcel A has a basis of $1,000 to the partnership and Parcel B has a basis of $3,000.Bradley's basis in the two parcels of land is:

In a proportionate liquidating distribution in which the partnership is also liquidated,Rosie received cash of $20,000 and inventory (basis of $12,000 and fair market value of $17,000).Immediately before the distribution,Rosie's basis in the partnership interest was $50,000.Rosie recognizes a loss of $18,000,and her basis in the inventory is $12,000.

Marilyn is a partner in a continuing partnership.At the end of the current year,the partnership makes a proportionate,nonliquidating distribution to Marilyn of $40,000 cash,inventory (basis of $12,000,fair market value of $10,000),and land (basis of $30,000,fair market value of $40,000).Marilyn's basis in the partnership interest was $80,000 before the distribution.What is Marilyn's basis in the inventory,land,and partnership interest following the distribution?

A distribution from a partnership to a partner is not generally taxable to the partner.

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

Which of the following statements is true regarding the sale of a partnership interest?

On December 31 of last year,Pat gave his daughter,Joy,a gift of a 50% interest in a partnership in which capital is a material income-producing factor.For the current calendar year,the partnership's ordinary income was $100,000.Pat and Joy were the only partners,and there were no guaranteed payments.Pat's services performed for the partnership were worth $40,000,and Joy has never performed any services.What is Joy's distributive share of partnership income for the current year?

Dan gifts a 50% interest in his consulting business to his daughter Joy.For the current tax year,the DJ Partnership reports income of $100,000.Dan's services to the partnership were valued at $60,000.For the current tax year,Joy would report a $20,000 share of the partnership's income.

Surina sells her 25% partnership interest to Katie for $50,000 on July 1 of the current tax year.Surina'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 Surina's share of partnership debt was $10,000 as of the date she sold the partnership interest.Assume the partnership has no hot assets and that its income is earned evenly throughout the year.Surina recognizes a gain of $2,500 on the sale.

In a proportionate liquidating distribution in which the partnership is liquidated,Greg received cash of $20,000,inventory (basis of $2,000,fair market value of $3,000),and a capital asset (basis and fair market value of $4,000).Immediately before the distribution,Greg's basis in the partnership interest was $30,000.

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?

For purposes of determining gain on a current distribution to a partner,a distribution of cash includes relief of a partner's share of partnership liabilities and certain distributions of marketable securities.

Pat is a 40% member of the P&J LLC.Her basis is $30,000 immediately before the LLC distributes to her $40,000 of cash and land (basis to the partnership of $25,000 and fair market value of $50,000).As a result of the proportionate nonliquidating distribution,Pat recognizes a gain of $10,000 and her basis in the land is $0.

Rita sells her 25% interest in the RSTU Partnership to Nancy for $90,000 cash.At the end of the year prior to the sale,Rita's basis in RSTU was $60,000.The partnership allocates $12,000 of income to Rita 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 Rita recognizes on the sale.

Geneva receives a proportionate nonliquidating distribution from the EFG Partnership.The distribution consists of $10,000 cash and property (adjusted basis to the partnership of $34,000 and fair market value of $42,000) .Immediately before the distribution,Geneva's adjusted basis in the partnership interest was $60,000.Her basis in the noncash property received is: