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Exam 11: Partnerships: Distributions, transfer of Interests, and Terminations

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Question 41

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Which of the following is not typically considered to be a "hot asset?"

A) Accounts receivable of a cash basis partnership.
B) Inventory with a basis of $10,000 and a fair market value of $15,000.
C) Depreciation recapture potential.
D) Stock held for investment.
E) Land held for development.

F) A) and D)
G) A) and C)

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Question 42

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Larry's partnership interest basis is $60,000.Larry receives a proportionate,liquidating distribution from a liquidating partnership of $45,000 cash and inventory having a basis of $30,000 to the partnership and a fair market value of $28,000.Larry assigns a basis of $15,000 to the inventory and recognizes no gain or loss.

A) True
B) False

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Question 43

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In a liquidating distribution,a partnership must distribute all of its property to all of its partners.

The ABC Partnership makes a proportionate distribution of its assets to Charles,in complete liquidation of his partnership interest.The distribution consists of $30,000 in cash and capital assets with a basis to the partnership of $20,000 and a fair market value of $28,000.None of the payment is for partnership goodwill.At the time of the distribution,Charles's partnership basis is $42,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return,it recognizes:

A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts.

Which of the following statements,if any,about an LLC is false?

The December 31,2010,balance sheet of the BCD General Partnership reads as follows. Each partner shares in 1/3 of the partnership capital,income,gain,loss,deduction and credit.Capital is not a material income-producing factor to the partnership.On December 31,2010,general partner Cassie receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736.Nothing is stated in the partnership agreement about goodwill.Cassie's outside basis for the partnership interest immediately before the distribution is $74,000. How much is Cassie's recognized gain from the distribution and what is the character of the gain?

Paul is a 25% owner in the DDBP LLC (a calendar year entity) .At the end of the last tax year,Paul's basis in his interest was $40,000,including his $10,000 share of LLC liabilities.On July 1 of the current tax year,Paul sells his LLC interest to Lee Anna for $50,000 cash.In addition,Lee Anna assumes Paul's share of LLC liabilities,which,at that date,was $15,000.During the current tax year,DDBP's taxable income is $100,000 (earned evenly during the year) .Paul's share of the LLC's unrealized receivables is valued at $5,000 ($0 basis) .At the sale date,what is Paul's basis in his LLC interest,how much gain or loss must he recognize,and what is the character of the gain or loss?

In a proportionate liquidating distribution,Lina receives a distribution of $10,000 cash,accounts receivable (basis of $0 and fair market value of $12,000) ,and inventory (basis of $30,000 and fair market value of $40,000) .Lina's basis in the entity immediately before the distribution was $80,000.As a result of the distribution,what is Lina's basis in the accounts receivable and inventory,and how much gain or loss does she recognize?

Maggie,a partner in the Magpie partnership,received a proportionate nonliquidating distribution of $20,000 cash,unrealized receivables with a basis of $0 and a fair market value of $30,000,and land with a basis of $25,000 and a fair market value of $20,000.Her basis in the partnership interest immediately before the distributions was $30,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $20,000 respectively.

Which of the following statements correctly reflects the rules regarding proportionate liquidating distributions?

A § 754 election is made for a tax year in which the partner recognizes gain or loss on a distribution from the partnership or the basis in distributed property is increased or decreased from the inside basis the partnership held in those assets.The election is made by a partner any time it is necessary to adjust his or her share of the inside basis of partnership assets.

The December 31,2010,balance sheet of the DIP General Partnership is as follows: The partners share equally in partnership capital,income,gain,loss,deduction,and credit and capital is not a material income-producing factor.On December 31,2010,general partner Dana receives a distribution of $120,000 cash in liquidation of her interest under § 736.Dana's outside basis for the partnership interest immediately before the distribution is $90,000.What is Dana's gain or loss on the distribution and its character?

Barney,Bob,and Billie are equal partners in the BBB Partnership.The partnership balance sheet reads as follows on December 31 of the current year: Partner Billie has an adjusted basis of $40,000 for her partnership interest.If Billie sells her entire partnership interest to new partner Janet for $60,000 cash,how much capital gain and ordinary income must Billie recognize from the sale?

A distribution can be "proportionate" even if only one partner receives assets from the partnership.

Jeremy receives a proportionate nonliquidating distribution from the JKL Partnership when the basis of his interest is $100,000.The distribution consists of cash of $25,000,land with a basis of $30,000 and a fair market value of $65,000,and inventory with a partnership basis of $50,000 and fair market value of $60,000.As a result of this distribution,Jeremy recognizes a $50,000 gain and takes a $65,000 basis in the land and a $60,000 basis in the inventory.

Normally a distribution of property from a partnership does not result in gain recognition.However,a distribution of marketable securities may be treated,in part,as a distribution of cash that could result in gain recognition.

A disproportionate distribution occurs when a cash distribution is not made in proportion to the partners' ownership interests in the partnership.(Assume the partnership's only assets are cash and land held for investment).

Which of the following is not true regarding a limited liability company?

In a proportionate liquidating distribution,UVW Partnership distributes to partner William cash of $25,000,accounts receivable (basis of $10,000 and fair market value of $8,000),and land (basis of $50,000 and fair market value of $60,000).William's basis was $75,000 before the distribution.On the liquidation,William recognizes no gain or loss,and he takes a basis of $10,000 in the accounts receivable,and $50,000 in the land.