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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 21

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Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash, inventory with a fair value of $20,000 (inside basis of $10,000) , and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in RD is $37,000. What is Randolph's basis in the distributed inventory and land?

A) $10,000 inventory, $10,000 land
B) $10,000 inventory, $5,000 land
C) $20,000 inventory, $10,000 land
D) $10,000 inventory, $12,000 land

E) A) and D)
F) B) and D)

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Question 22

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Locke is a 50% partner in the LS Partnership. Locke has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution. On December 31, Locke receives an operating distribution of $30,000 cash. LS has no debt or hot assets. What is the amount and character of Locke's recognized gain or loss? What is Locke's ending basis in his partnership interest?

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Question 23

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Jackson is a 30% 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?

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?

Nadine Fimple is a one-half partner in the NL Partnership with equal inside and outside bases. On January 1, NL distributes accounts receivable with a fair value of $100,000 to Nadine as an operating distribution. NL's balance sheet as of January 1 is as follows: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 1 0 0 , 0 0 0 } & \mathbf { \$ 1 0 0 , 0 0 0 } \\\text { Accounts receivable } & \underline { \underline { - 0 } - } & \underline { \mathbf { 1 0 0 , 0 0 0 } } \\\text { Total } & \underline { \mathbf { \$ 1 0 0 , 0 0 0 } } & \underline { \mathbf { \$ 20 0 , 0 0 0 } } \\& & \\\text { Nadine, capital } & \mathbf { \$ 5 0 , 0 0 0 } & \\\text { Louis, capital } & \underline { \mathbf { 5 0 , 0 0 0 } } & \\\text { Total } & \underline { \mathbf { \$ 10 0 , 0 0 0 } } &\end{array}$ What is the amount and character of Nadine's recognized gain or loss on the distribution?

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?

Kathy is a 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $160,000. KDP currently has a § 754 election in effect and has no hot assets or liabilities. Which of the following statements is true?

Federico is a 30% partner in the FRM Partnership when he sells his entire interest to Maria for $98,000. At the time of the sale, Federico's basis in FRM is $74,000. FRM does not have any debt. In addition, FRM's assets include accounts receivable with zero tax basis and $21,000 fair market value at the date of the sale. Federico will recognize ordinary income of $24,000 on the sale of his partnership interest.

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

A partner that receives cash in an operating distribution recognizes loss if the cash distributed is less than the partner's outside basis in the partnership immediately before the distribution.

Zayde is a 1/3 partner in the ARZ partnership with an outside basis of $156,000 on January 1. Zayde sells his partnership interest to Thomas on January 1st for $180,000 cash. The ARZ Partnership has the following assets and no liabilities as of January 1: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { 2 7 , 0 0 0 } & \mathbf { \$ 2 7 , 0 0 0 } \\\text { Accounts receivable } & - \mathbf { 0 } - & \mathbf { 1 8 , 0 0 0 } \\\text { Inventory } & \mathbf { 1 0 3 , 5 0 0 } & \mathbf { 1 2 1 , 5 0 0 } \\\text { Equipment } & \mathbf { 2 7 0 , 0 0 0 } & \mathbf { 3 3 7 , 5 0 0 } \\\text { Stock investment } & \underline { \mathbf { 6 7 , 5 0 0 } } & \underline { \mathbf { 9 6 , 0 0 0 } } \\\text { Totals } & \underline { \mathbf { 4 6 8 , 0 0 0 } } & \underline { \underline { \mathbf { 6 0 0 , 0 0 0 } } }\end{array}$ The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation. The stock was purchased 3 years ago. What is the amount and character of Zayde's gain or loss on the sale of his partnership interest?

A partner that receives cash in an operating distribution recognizes gain if the cash distributed exceeds the partner's outside basis in the partnership immediately before the distribution.

The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as capital.

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

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

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.

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. What is the amount and character of Tyson's recognized gain or loss?

Which of the following statements regarding liquidating distributions is true?

Which of the following assets would not be classified as hot assets?