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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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Joan is a 1/3 partner in the PDJ Partnership. PDJ Partnership uses the proration method to allocate income and losses to partners with varying interests. On May 1, Joan sells her interest to Freddie for a cash payment of $75,000. On January 1, Joan's basis in PDJ is $57,000. PDJ generates $60,000 ofordinary income and $9,000 of tax-exempt income during the first four months of the year. PDJ has the following assets and no liabilities at the sale date:S What is the amount and character of Joan's gain or loss on the sale?

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$5,000 capital loss.
Loss of $...

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Question 22

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In complete liquidation PW distributes the cash to Pamela and the unrealized receivables to Wade(equal partners) . Pamela and Wade each have an outside basis in PW equal to $5,000. PW has no liabilities at the time of the liquidation. What is the amount and character of Wade's recognized gain or loss?

A) $2,500 capital gain and $2,500 ordinary income.
B) $5,000 ordinary income.
C) $5,000 capital gain.
D) $0.

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

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Question 23

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A partner that receives cash in an operating distribution recognizes loss if the cashdistributed is less than the partner's outside basis in the partnership immediately before the distribution.

A partner recognizes gain when he receives cash in excess of his outside basis in a liquidating distribution.

Which of the following statements is true regarding partnership operating distributions?

Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment with a fair value of $20,000 (inside basis of $10,000) , and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in completeliquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in RD is $48,000. What is Randolph's basis in the distributed investment and land?

In an operating distribution, when a partnership distributes property other than money with a basis that exceeds the partner's outside basis, the partner assigns a carryover basis to the distributed assets and recognizes a gain.

Tyson, a one-quarter partner in the TF Partnership, receives a proportionate distribution to liquidate his partnership interest on January 1. The distribution consists of $70,000 cash and inventory with a fair value of $40,000 (inside basis is $22,000). Tyson's outside basis is $90,000 including his$10,000 share of TF's liabilities. What is the amount and character of Tyson's recognized gain or loss? What is Tyson's basis in the distributed inventory?

Which of the following statements is true regarding partnership operating distributions?

Which of the following statements regarding disproportionate distributions is false?

Heidi and Teresa are equal partners in the HT Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $50,000 basis in their partnership interests. On December 31, the partnership makes a proportionateoperating distribution to Teresa of $40,000 cash and stock with a fair value of $20,000 (inside basis of $7,000). What is the amount and character of Teresa's recognized gain or loss? What is Teresa's remaining basis in HT?

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes aproportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela. JRD has no liabilities at the date of thedistribution. Daniela's basis in JRD is $21,000. What is the amount and character ofDaniela's gain or loss from the distribution?

Tyson, a one-quarter partner in the TF Partnership, receives a proportionate distribution of $70,000 to liquidate his partnership interest on January 1. Tyson's outside basis is $75,000 including his$10,000 share of TF's liabilities. TF does not hold any hot assets. What is the amount and character of Tyson's recognized gain or loss?

Jenny has a $54,000 basis in her 50% partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate current distribution to Jenny of a parcel of land with an $80,000 fair value and a $64,000 basis to JM. The land is encumbered with a $30,000 mortgage (JM's only liability) . What is Jenny's basis in the land and her remaining basis in JM after the distribution?

A partner will recognize a loss from a liquidating distribution when the distributionincludes only cash, unrealized receivables, and inventory and the partner's outside basis is less than the sum of the bases of the distributed assets.

Katrina is a one-third partner in the KYR partnership (calendar year-end). Katrina decides she wants to exitthe partnership and receives a proportionate distribution to liquidate her partnership interest on January 1. The partnership has no liabilities and holds the following assets as of January 1: Katrina receives one-third of each of the partnership assets. She has a basis in her partnership interest of$250,000. What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

Victor is a 1/3 partner in the VRX partnership with an outside basis of $156,000 on January 1.Victor sells his partnership interest to Raj on January 1st for $200,000 cash. The VRX Partnership has the following assets and no liabilities as of January 1: The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation. The stock was purchased 7 years ago. What is the amount and character of Victor's gain or loss on thesale of his partnership interest?

Under what conditions will a partner recognize a gain in a liquidating distribution?

Lola is a 35% partner in the LW Partnership. On January 1, LW distributes $39,000 cash to Lola in complete liquidation of her partnership interest. LW has only capital assets and no liabilities at the date of the distribution. Lola's basis in LW is $50,000. What is the amount and character of Lola's gain or loss?

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $0) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is$21,000. What is Daniela's basis in the distributed inventory and accounts receivable?