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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 31

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Marcella has a $65,000 basis in her 50% partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate current 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?

A) $80,000 inventory basis, $0 JM basis
B) $40,000 inventory basis, $0 JM basis
C) $40,000 inventory basis, $15,000 JM basis
D) $80,000 inventory basis, $15,000 JM basis

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

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Question 32

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Brian is a 25% 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 BC is $16,000. What is the amount and character of Brian's gain or loss on the distribution?

A) $0
B) $4,000 capital gain
C) $12,000 capital gain
D) $20,000 capital gain

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

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Question 33

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Marty is a 40% owner of MB Partnership. Marty has decided to sell his interest in the business to Emilio for $100,000 cash plus the assumption of his share of MB's liabilities. Assume Marty's inside and outside basis in MB are equal. MB shows the following balance sheet as of the sale date: What is the amount and character of Marty's recognized gain or loss?

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).

Riley is a 50% 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?

Nadine Fimple is a one-third partner in the NWL Partnership with equal inside and outside bases. On January 1, NWL distributes $100,000 to Nadine in complete liquidation of her FPL interest. NWL's balance sheet as of January 1 is as follows: What is the amount and character of Nadine's recognized gain or loss on the distribution?

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 regarding hot assets for purposes of disproportionate distributions is false?

A partner recognizes a loss when he receives cash and other property with inside bases greater than his outside basis in a liquidating distribution.

Cash distributions include decreases in a partner's share of partnership liabilities.

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a 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 JRD is $21,000. What is the amount and character of Daniela's gain or loss from the 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.

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership 5 years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $44,000. On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

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.

Daniel acquires a 30% interest in the PPZ Partnership from Paolo, an existing partner for $39,000 of cash. The PPZ Partnership has borrowed $10,000 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

Hot assets include assets except cash, capital assets and §1231 assets.

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

A disproportionate distribution of hot assets is treated as though the partnership distributes a proportionate share of hot assets to the partner and then the partner sells those hot assets back to the partnership at fair market value in exchange for a portion of the assets actually received in the distribution.

Under which of the following circumstances will a partner recognize a loss from an operating distribution?