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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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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?

A) $0 gain or loss.
B) $11,000 capital gain.
C) $11,000 ordinary income.
D) $11,000 capital loss.

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

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Question 42

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Kathy is a 25 percent partner in the KDP Partnership and receives a parcel of land with a fair value of $150,000 (inside basis of $100,000) in complete liquidation of her partnership interest.Kathy's outside basis immediately before the distribution is $200,000.KDP currently has a §754 election in effect and has no hot assets or liabilities.What is KDP's special basis adjustment from the distribution?

A) $0.
B) $50,000 positive basis adjustment.
C) $100,000 positive basis adjustment.
D) $100,000 negative basis adjustment.

E) All of the above
F) A) and D)

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Question 43

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Daniela is a 25 percent 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?

Tatia's basis in her TRQ Partnership interest is $33,000.Tatia receives a distribution of $22,000 cash from TRQ in complete liquidation of her interest.The three partners in TRQ share profits,losses,and capital equally.TRQ has the following balance sheet: a.What is the amount and character of Tatia's recognized gain or loss? What is the effect on the partnership assets? b.If TRQ has a §754 election in place,what is the amount and sign (positive or negative)of the special basis adjustment?

The SSC,a cash-method partnership,has a balance sheet that includes the following assets on December 31 of the current year: Susan,a one-third partner,has an adjusted basis of $90,000 for her partnership interest.If Susan sells her entire partnership interest to Emma for $120,000 cash,how much capital gain and ordinary income must Susan recognize from the sale?

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: 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?

Hot assets include assets other than cash,capital assets,and §1231 assets.

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.

Jaime has a basis in her partnership interest of $50,000 when the partnership distributes (in an operating distribution)two parcels of land to Jaime,each valued at $30,000.Prior to the distribution,the partnership's basis in parcel A is $40,000 and the basis in parcel B is $20,000.Jaime allocates $20,000 of basis to parcel A and $30,000 of basis to parcel B.

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 pro rata operating distribution to Heidi of $60,000 cash.What is the amount and character of Heidi's recognized gain or loss? What is Heidi's remaining basis in HT?

Daniel's basis in the DAT Partnership is $135,000.DAT distributes its land to Daniel in complete liquidation of his partnership interest.DAT reports the following balance sheet just before the distribution: If DAT has a §754 election in place,what is the amount and sign (positive or negative)of the special basis adjustment resulting from the distribution to Daniel? What is DAT's basis in its remaining assets?

If the partnership has hot assets at the time a partnership interest is sold,the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (loss).

In which type of distribution may a partner recognize a loss on the distribution?

Riley is a 50 percent partner in the RF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions.On December 31,Riley receives a proportionate operating distribution of $6,000 cash and a parcel of land with a $14,000 fair value and an $8,000 basis to RF.What is the amount and character of Riley's recognized gain or loss and what is his basis in his partnership interest?

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000.Just prior to the sale,Paul's outside and inside bases in KDP are $48,000.KDP's balance sheet includes the following: If KDP has a §754 election in place,what is Kathy's special basis adjustment?

Jason is a 25 percent partner in the JJM Partnership when he sells his entire interest to Lavelle for $76,000.At the time of the sale,Jason's basis in JJM is $87,000.JJM does not have any debt or hot assets.Jason will recognize a gain of $11,000 on the sale of his partnership interest.

A §754 election is made by a distributee partner for a tax year in which (1)the distributee partner recognizes gain or loss on a distribution from a partnership or (2)the distributee partner's basis in distributed assets differs from the partnership's inside basis in those assets.

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

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.

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