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Exam 10: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate 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 the distribution. Daniela's basis in her JRD Partnership interest is $21,000. What is the amount and character of Daniela's gain or loss from the distribution?

A) $0.
B) $14,000 ordinary income.
C) $4,000 capital loss.
D) $4,000 capital gain.

E) None of the above
F) A) and B)

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Question 22

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Kathy is a 25percent partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $160,000. KDP currently has a §754 election in effect and has no hot assets or liabilities. Which of the following statements is true?

A) KDP will increase the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
B) KDP will increase the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.
C) KDP will decrease the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
D) KDP will decrease the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.

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

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Question 23

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Victor is a one-third partner in the VRX Partnership, with an outside basis of $242,200 on January 1. Victor sells his partnership interest to Raj on January 1 for $291,000 cash. The VRX Partnership has the following assets and no liabilities as of January 1: (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) The equipment was purchased for $381,000 and the partnership has taken $95,250 of depreciation. The stock was purchased seven years ago. What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

Jessica is a 25percent partner in the JRL Partnership. On January 1, JRL distributes $40,000 cash to Jessica. JRL has no hot assets or liabilities at the date of the distribution. Jessica's basis in her JRL partnership interest is $28,000. What is the amount and character of Jessica's gain or loss from the distribution?

Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $25,000 cash, inventory with a $17,400 fair value (inside basis $8,700) , and accounts receivable with a fair value of $8,700 (inside basis of $13,050) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $28,050. What is Daniela's basis in the distributed inventory and accounts receivable?

Brian is a 25percent partner in the BC Partnership. On January 1, BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000) to Brian. BC has no liabilities at the date of the distribution. Brian's basis in his BC Partnership interest is $16,000. What is the amount and character of Brian's gain or loss on the distribution?

Katrina is a one-third partner in the KYR Partnership (calendar year-end). Katrina decides she wants to exit the 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?

A partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

In the sale of a partnership interest, a selling partner will recognize ordinary income (rather than capital gain) when the partnership assets include cash and land held for five years as an investment.

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 asset and recognizes a gain.

Zayde is a one-third partner in the ARZ Partnership, with an outside basis of $156,000 on January 1. Zayde sells his partnership interest to Thomas on January 1 for $180,000 cash. The ARZ 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 three years ago. What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?

Marcella has a $65,000 basis in her 50percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a $40,000 basis to JM. What is Marcella's basis in the inventory and her remaining basis in JM after the distribution?

Randolph is a 30percent partner in the RD Partnership. On January 1, RD distributes $26,000 cash to Randolph in complete liquidation of his interest. RD has only capital assets and no liabilities at the date of the distribution. Randolph's basis in his RD Partnership interest is $37,000. What is the amount and character of Randolph's gain or loss on the distribution?

Lola is a 35percent 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 $30,000. What is the amount and character of Lola's gain or loss?

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

Operating distributions completely terminate a partner's interest in the partnership.

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 $105,000, 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?

Scott is a 50 percent partner in the LS Partnership. Scott has a basis in his partnership interest of $102,000 at the end of the current year, prior to any distribution. On December 31, Scott receives an operating distribution of $10,800 cash and a parcel of land with a $30,000 fair market value and a $30,000 basis to the partnership. LS has no debt or hot assets. What is the amount and character of Scott's recognized gain or loss? What is Scott's basis in the distributed property? What is Scott's ending basis in his partnership interest?

Daniel acquires a 30percent interest in the PPZ Partnership from Paolo, an existing partner, for $49,000 of cash. The PPZ Partnership has borrowed $20,000 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

Daniela is a 25percent 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 $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $20,000. What is Daniela's basis in the distributed inventory and accounts receivable?