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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 31

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Carmello is a one-third partner in the CDW Partnership with equal inside and outside bases.On December 31, Carmello sells his interest to Conrad for $100,000 cash.CDW makes a §754 election and its balance sheet as of December 31 is as follows: $\begin{array}{llll}&\text { Basis } &\text {FMV}\\ \text { Cash } & \$60,000&\$60,000 \\ \text { Capital asset (nondepreciable) } &\underline{120,000}&\underline{240,000}\\ \text { Total } &\underline{\$180,000}&\underline{\$300,000}\\\\ \text { Carmello, capital } &\$60,000\\ \text {Doug, capital } &60,000\\ \text {Wendy, capital } &\underline{60,000}\\ \text { Total } &\underline{\$180,000}\\ \\\end{array}$ What is the amount and sign (positive or negative)of Conrad's special basis adjustment? If CDW sells the capital asset next year for $300,000, what is the amount of gain Conrad will recognize because of the sale?

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$40,000 positive special basis adjustmen...

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Question 32

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Lola is a 35 percent 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?

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$9,000 capital gain.
Lola's ga...

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Question 33

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

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

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?

Which of the following statements regarding a partner's basis of inventory received in a liquidating distribution is true?

Jackson is a 30 percent partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash.At the time of the sale, Jackson's basis in JJM is $64,000.JJM does not have any debt or hot assets.What is Jackson's gain or loss on the sale of his interest?

Catherine is a 30 percent partner in the ACW Partnership, with an outside basis of $20,000.ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest.Catherine recognizes a capital loss of $2,000 on the distribution.

A partner's debt relief from the sale of a partnership interest will decrease his outside basis.

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

Randolph is a 30 percent 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?

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: $\begin{array}{lrr}& {\text { Basis }} & \text { FMV } \\ \text { Cash } & \$ 180,000 & \$ 180,000 \\\text { Accounts receivable }& -0- & 240,000 \\\text { Stock investment } & 75,000 & 120,000 \\\text { Land } &\underline{ 300,000} &\underline{ 360,000 }\\\text { Totals } & \underline{\$ 555,000 }& \underline{\$ 900,000}\end{array}$ Katrina receives one-third of each of the partnership assets.She has a basis in her partnership interest of $110,000.What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

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

Which of the following is false concerning special basis adjustments under Section 754?

Esther and Elizabeth are equal partners in the EE Partnership.The partners formed the partnership seven years ago by contributing cash.Prior to any distributions, the partners each have a $40,000 basis in their partnership interests, including their share of partnership liabilities.On December 31, EE Partnership repays $50,000 of debt.What is the amount and character of Esther's recognized gain or loss? What is Esther's remaining basis in EE?

The SSC Partnership, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: $\begin{array} { l r r } & { \text { Basis } } & { \text { FMV } } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\\text { Accourts receivable } & - 0 - & 60,000 \\ \text { Equiprnent } ( \text { cost } = \$ 100,000 ) & 40,000 & 50,000 \\\text { Land } &\underline{ 90,000 }&\underline{ 120,000} \\\text { Total }& \underline{\$ 310,000} & \underline{\$ 410,000} \\\end{array}$ Which of SSC's assets are considered hot assets under §751(a) ?

Under the entity concept, a partnership interest is an intangible asset similar to an ownership interest in a corporation.As such, a partnership interest is generally treated as a capital asset, the disposal of which results in capital gain or loss.

Marcella has a $65,000 basis in her 50 percent 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?

The PW Partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{c}\begin{array}{lll}\\\text { Cash } \\\text { Urrealized receivables } \\\text { Total }\end{array}\begin{array}{lll}\text { Basis}\\ \$ 10,000\\\underline{-0-}\\\underline{\$ 10,000}\end{array}\begin{array}{lll}\text {FMV}\\ \$ 10,000\\\underline{10,000}\\\underline{\$ 20,000}\end{array}\end{array}$ 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?