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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 1

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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?

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Tyson does not recognize any gain or los...

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Question 2

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At the end of last year, Cynthia, a 20 percent partner in the five-person CYG partnership, has an outside basis of $30,000, including her $15,000 share of CYG debt.On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $22,500 and the assumption of her share of CYG's debt.CYG has no hot assets.What is the amount and character of Cynthia's recognized gain or loss on the sale?

A) $7,500 capital loss.
B) $7,500 ordinary loss.
C) $7,500 capital gain.
D) $7,500 ordinary income.

E) A) and D)
F) A) and C)

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Question 3

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A disproportionate distribution is a distribution in which the partner's share of the partnership's hot assets either increases or decreases as a result of the distribution.

In which type of distribution may a partner recognize a loss on 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: $\begin{array} { l r r } \text { Assets: } & \text { Basis } & \text { FMV } \\\text { Cash } & \$ 22,000 & \$ 22,000 \\\text { Stock (irvestrnent) } & 11,000 & 22,000 \\\text { Larld } & \underline{66,000} & \underline{22,000} \\\text { Totals } &\underline{ \$ 99,000}& \underline{\$ 66,000}\end{array}$ $\begin{array}{llcc} \text {Liabilities ard capital: } & \\ \text {Capital } &\text { -Tatia }&\$33,000\\ &\text { -Rihannia }&33,000\\& \text { -Quinn } &\underline{33,000}\\ \text { Totals} &&\underline{\$99,000}\\\end{array}$ 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?

Tyson is a 25 percent partner in the KT Partnership.On January 1, KT makes a proportionate 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 Tyson's basis in the distributed land?

Jenny has a $54,000 basis in her 50 percent partnership interest in the JM Partnership before receiving any distributions.This year JM makes a proportionate operating distribution to Jenny of a parcel of land with an $80,000 fair value and a $64,000 basis to JM.The land is encumbered with a $30,000 mortgage (JM's only liability) .What is Jenny's basis in the land and her remaining basis in JM after 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?

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: $\begin{array}{llll} \text { } & \text {Basis } & \text {FMV } \\ \text { Inventory } &\$120,000&\$120,000\\ \text {Land } &\underline{60,000}&\underline{180,000}\\ \text { Total } &\underline{\$180,000}&\underline{\$300,000}\\\end{array}$ $\begin{array}{llcc} \text { Nadine, capital} & \$60,000 \\ \text { Wendell, capital } &60,000\\ \text { Lousis, capital} &\underline{60,000}\\ \text { Total } &\underline{\$180,000}\\\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

Which of the following statements regarding disproportionate distributions is false?

The SSC, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: $\begin{array}{lrr}&{\text { Basis }} & \text { FMV } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\ \text { Accounts receivable }& -0- & 60,000 \\ \text { Land }&\underline{ 90,000} &\underline{ 120,000} \\\text { Total }& \$ 270,000& \$ 360,000\end{array}$ 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?

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

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?

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 $50,000.What is the amount and character of Lola's gain or loss?

The SSC, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: $\begin{array}{lrr}&{\text { Basis }} & \text { FMV } \\\text { Cash } & \$ 180,000 & \$ 180,000 \\ \text { Accounts receivable }& -0- & 60,000 \\ \text { Land }&\underline{ 90,000} &\underline{ 120,000} \\\text { Total }& \$ 270,000& \$ 360,000\end{array}$ 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 $100,000 cash, what is the amount and character of Susan's gain or loss from the sale?

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.

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

Joan is a 30 percent partner in the OJT Partnership when she sells her entire interest to Crissy for $100,000 cash.At the time of the sale, Joan's basis in OJT is $63,000 (which includes her $10,000 share of OJT liabilities).OJT does not have any hot assets.What is the amount and character of Joan's gain or loss on the sale?

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

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?