Question 1

Rajesh contributed appreciated property to the RS Partnership in year 1. In year 4, that property was distributed to Simon. Which one of the following statements best captures the tax consequences of the distribution?

Accepted Answer

A)   Distributions are tax-deferred transactions; because no cash is distributed, neither the partners nor the partnership recognize gain on the distribution.
B)   The partnership recognizes the precontribution gain; Simon's basis in the property is increased by the amount of recognized gain.
C)   Simon recognizes the precontribution gain and increases his basis in the partnership interest; the partnership's basis in other property is increased by the amount of recognized gain.
D)   Rajesh recognizes the precontribution gain and increases his basis in the partnership interest; Simon's basis in the distributed property is increased by the amount of recognized gain.
E)   Rajesh recognizes the precontribution gain and increases his basis in the partnership interest; the partnership's basis in other property is increased by the amount of recognized gain.F) B) and D)
G) B) and C)

Question 2

The RST Partnership makes a proportionate distribution of its assets to Ryan in complete liquidation of his partnership interest. The distribution consists of $40,000 in cash and capital assets with a basis to the partnership of $30,000 and a fair market value of $48,000. None of the payment is for partnership goodwill. At the time of the distribution, Ryan's partnership basis is $45,000 and the partnership has no liabilities and no hot assets. If the partnership makes an optional basis adjustment election on a timely filed return, the partnership recognizes:

Accepted Answer

A)   Capital gain of $25,000 and increases the basis of its remaining assets by $12,500.
B)   Capital loss of $5,000 and decreases the basis of its remaining assets by $5,000.
C)   No gain or loss and increases the basis of its remaining assets by $12,500.
D)   No gain or loss and increases the basis of its remaining assets by $25,000.
E)   No gain or loss and decreases the basis of its remaining assets by $58,000.F) A) and B)
G) A) and C)

Question 3

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

Accepted Answer

A)   The seller's adjusted basis for the partnership interest is increased by the seller's share of undistributed partnership income or reduced by partnership loss)  for the portion of the partnership's taxable year ending on the date of the sale.
B)   The partnership taxable year generally does not close with respect to a partner who transfers a partnership interest at death; all amounts are allocated to the successor.
C)   The amount realized on the sale of a partnership interest is the sum of any money and the fair market value of any property received for the interest plus the selling partner's share of partnership liabilities under § 752.
D)   With respect to a transfer of a partnership interest by gift, all partnership gain, loss, credit, etc., items are allocated between the donor and the donee.
E)   All of these are true statements.F) A) and E)
G) C) and E)

Question 4

Match the following statements with the best match from the following choices. Choice M may be used more than once.
-Step down

Accepted Answer

A)  Includes the partner's share of partnership liabilities.
B)  Could result from sale of a partnership interest for more than the partner's share of the inside basis of assets.
C)  Liquidation payments from this type of partnership are always § 736b)  payments.
D)  Could arise if a distribution results in loss to the distributee partner.
E)  May be a § 736a)  payment.F) May receive § 736a)  payments.G) Probably treated as a general partner for § 736 purposesH) Conversion of an LLC to a C corporationI) Liquidation payments from this type of partnership may include § 736a)  payments.J) A § 736b)  payment.K) Adjustment designed to bring inside and outside bases into balance.L) Partnership asset basis is at least $250,000 > FMV.M) No correct match is provided.N) A) and G)
O) H) and M)

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

Julie is an active owner of a 52% interest in the JIR LLP, a consulting company service provider). Her basis in the partnership interest is $100,000, and her share of the partnership's inside basis in assets is $120,000. Julie can sell her interest in the LLP on the first day of the tax year to Irene and Rachel the other partners) for $100,000 each $200,000 total). Alternatively, the LLP can distribute $200,000 of cash to redeem Julie's interest.
Assume the following: $10,000 of the redemption payment would be for the LLP's goodwill which is not provided for in the partnership agreement); Julie's share of JIR's unrealized receivables is $40,000; and JIR has a § 754 election in effect. What are the advantages and disadvantages of the sale versus the redemption from Julie's and JIR's perspective? What is your recommendation? Explain.

Accepted Answer

Sale. On a sale of the partnership inter...

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

The December 31 balance sheet of the calendar year JKL Partnership reads as follows. $$\begin{array} { l r r } 
& \text { Adjusted } \
& \text { Basis } & \text { FMV } \
\text { Cash } & \$ 24,000 & \$ 24,000 \

\end{array}$$ $\begin{array}{lrr}
\text { Capital asset (nondepreciable) } & {33,000}&{105,000} \
\text { Total } & \$ 57,000 & \$ 129,000\\
\text { Jan, capital } & \$ 19,000 & \$ 43,000 \
\text { Ken, capital } & 19,000 & 43,000 \
\text { Laura, capital } & \underline{19,000} & 43,000 \
\text { Total } & \$ 57,000 & \$ 129,000
\end{array}$ Each partner shares in 1/3 of the partnership capital, income, gain, loss, deduction, and credit. On December 31, Jan sells her 1/3 partnership interest to Jennifer for $43,000 cash. Assume the partnership has a § 754 election in place.

a. What is the amount of Jennifer's step up adjustment under § 743b)?
b. If the nondepreciable capital asset is sold the next year for $120,000, determine the amount of gain that Jennifer will recognize on her tax return because of the sale.

Accepted Answer

of partnership assets from her $43,000 p...

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.

Accepted Answer

A) True 
 B)False

Question 11

Match the following statements with the best match from the following choices. Choice K may be used more than once.
-Current distribution

Accepted Answer

A)  Cash basis accounts receivable, for example.
B)  Fair market value exceeds 120% of basis.
C)  Inside basis of partnership property can be adjusted to reflect the purchase price paid.
D)  Terminates the partner's interest in the partnership.
E)  Ordinary income-producing items.F) Cash, then inventory and unrealized receivables, and then other assets.G) Does not eliminate the partner's interest in the partnership.H) Changes the partner's or the partnership's ordinary income potential.I) Any partnership assets other than cash, capital, or § 1231 assets.J) Sometimes treated as an unrealized receivable.K) No correct match provided.L) A) and K)
M) B) and E)

Question 12

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?

Accepted Answer

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.F) None of the above
G) C) and D)

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

Match the following statements with the best match from the following choices. Choice M may be used more than once.
-Stated goodwill

Accepted Answer

A)  Includes the partner's share of partnership liabilities.
B)  Could result from sale of a partnership interest for more than the partner's share of the inside basis of assets.
C)  Liquidation payments from this type of partnership are always § 736b)  payments.
D)  Could arise if a distribution results in loss to the distributee partner.
E)  May be a § 736a)  payment.F) May receive § 736a)  payments.G) Probably treated as a general partner for § 736 purposesH) Conversion of an LLC to a C corporationI) Liquidation payments from this type of partnership may include § 736a)  payments.J) A § 736b)  payment.K) Adjustment designed to bring inside and outside bases into balance.L) Partnership asset basis is at least $250,000 > FMV.M) No correct match is provided.N) C) and M)
O) A) and L)

Question 16

The December 31 balance sheet of GST Services, LLP reads as follows.   Adjusted  Basis  FMV  Cash $300,000$300,000 Receivables −0−150,000 Capital assets 120,000‾150,000‾ Total $420,000$600,000 George, capital $140,000$200,000 Sue, capital 140,000200,000\begin{array}{lrr}&	ext { Adjusted } & \&	ext { Basis } & 	ext { FMV } \	ext { Cash } & \$ 300,000 & \$ 300,000 \	ext { Receivables } & -0- & 150,000 \	ext { Capital assets } & \underline{120,000} & \underline{150,000} \	ext { Total } & \$ 420,000 & \$ 600,000\\	ext { George, capital } & \$ 140,000 & \$ 200,000 \	ext { Sue, capital } & 140,000 & 200,000\end{array} Cash  Receivables  Capital assets  Total  George, capital  Sue, capital ​ Adjusted  Basis $300,000−0−120,000​$420,000$140,000140,000​ FMV $300,000150,000150,000​$600,000$200,000200,000​    Tom, capital 140,000200,000 Total $420,000$600,000\begin{array}{lll}	ext { Tom, capital } & {140,000}& {200,000}\	ext { Total } &{\$ 420,000} &{\$ 600,000} \end{array} Tom, capital  Total ​140,000$420,000​200,000$600,000​  The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership, and all partners are active in the business. On December 31, general partner Sue receives a distribution of $200,000 cash in liquidation of her partnership interest under § 736. Sue's outside basis for the partnership interest immediately before the distribution is $150,000. Her basis does not correspond to her capital account because she purchased the interest a few years ago at a $10,000 premium.)  How much is Sue's gain or loss on the distribution and what is its character?

Accepted Answer

A)   $50,000 ordinary income.
B)   $40,000 ordinary income? $10,000 capital gain.
C)   $40,000 capital gain? $10,000 ordinary income.
D)   $60,000 ordinary income.
E)   $50,000 ordinary income? $10,000 capital gain. F) B) and D)
G) A) and E)

Question 17

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?

Accepted Answer

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.F) A) and D)
G) C) and D)

Question 18

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below.
-Distribution of $100,000 cash representing the partner's share of the value of partnership equipment that has potential depreciation recapture of $25,000.

Accepted Answer

A)  A payment for the partner's share of partnership income under § 736a) .
B)  A payment for the partner's share of partnership property under § 736b) .
C)  The payment includes both a § 736a)  and a § 736b)  element.D) B) and C)
E) A) and C)

Question 19

Match the following statements with the best match from the following choices. Choice M may be used more than once.
-Unstated goodwill

Accepted Answer

A)  Includes the partner's share of partnership liabilities.
B)  Could result from sale of a partnership interest for more than the partner's share of the inside basis of assets.
C)  Liquidation payments from this type of partnership are always § 736b)  payments.
D)  Could arise if a distribution results in loss to the distributee partner.
E)  May be a § 736a)  payment.F) May receive § 736a)  payments.G) Probably treated as a general partner for § 736 purposesH) Conversion of an LLC to a C corporationI) Liquidation payments from this type of partnership may include § 736a)  payments.J) A § 736b)  payment.K) Adjustment designed to bring inside and outside bases into balance.L) Partnership asset basis is at least $250,000 > FMV.M) No correct match is provided.N) E) and J)
O) A) and H)

Question 20

Randy owns a one-fourth capital and profits interest in the calendar year RUSR Partnership. His adjusted basis for his partnership interest was $200,000 when he received a proportionate nonliquidating distribution of the following assets. $\begin{array}{lrr}&\text { Partnership's Basis in Asset} &\text { Asset's Fair Market Value }\
\text { Cash } & \$ 120,000 & \$ 120,000 \
\text { Inventory } & 60,000 & 90,000
\end{array}$

a. Calculate Randy's recognized gain or loss on the distribution, if any. Explain.
b. Calculate Randy's basis in the inventory received.
c. Calculate Randy's basis for his partnership interest after the distribution.

Accepted Answer

nonliquidating distribution, no loss is ...

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

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.

Correct Answer
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nonliquidating distribution, no loss is ...
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Which of the following statements about the transfer of a partnership interest is not true?

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of partnership assets from her $43,000 p...
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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Step down

Correct Answer
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Rajesh contributed appreciated property to the RS Partnership in year 1. In year 4, that property was distributed to Simon. Which one of the following statements best captures the tax consequences of the distribution?

Correct Answer
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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Stated goodwill

Correct Answer
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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.

Correct Answer
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Sale. On a sale of the partnership inter...
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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Unstated goodwill

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Match the following statements with the best match from the following choices. Choice K may be used more than once. -Current distribution

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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.

Correct Answer
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Exam 11: Partnerships: Distributions, Transfer of Interests, and Terminations

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.

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Correct AnswerverifiedShow Answer

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Correct Answerverifiednonliquidating distribution, no loss is ...View AnswerShow Answer

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

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Correct Answerverifiedof partnership assets from her $43,000 p...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Match the following statements with the best match from the following choices. Choice M may be used more than once. -Step down

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Rajesh contributed appreciated property to the RS Partnership in year 1. In year 4, that property was distributed to Simon. Which one of the following statements best captures the tax consequences of the distribution?

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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Stated goodwill

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSale. On a sale of the partnership inter...View AnswerShow Answer

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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Unstated goodwill

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Match the following statements with the best match from the following choices. Choice K may be used more than once. -Current distribution

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Correct AnswerverifiedShow Answer

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.

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nonliquidating distribution, no loss is ...
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of partnership assets from her $43,000 p...
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Sale. On a sale of the partnership inter...
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