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Exam 21: Dispositions of Partnership Interests and Partnership Distributions

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Question 31

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The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{c}\begin{array}{lll}\\Cash\\\text{Unrealized receivables}\\Totals\\\end{array}\begin{array}{lll}\underline{\text { Basis }} \\\mathbf{1 0 , 0 0 0} \\\underline{\mathbf{-0-}} \\\$ \mathbf{10 , 0 0 0}\\\end{array}\begin{array}{lll}\underline{FMV}\\\mathbf{\$ 1 0 , 0 0 0} \\\underline{\mathbf{1 0 , 0 0 0}} \\\mathbf{\$ 2 0 , 0 0 0}\\\end{array}\end{array}$ In complete liquidation PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners) . Pamela and Wade each have an outside basis in PW equal to $5,000. PW has no liabilities at the time of the liquidation. What is the amount and character of Pamela's recognized gain or loss?

A) $0
B) $5,000 capital gain
C) $5,000 ordinary income
D) $2,500 capital gain and $2,500 ordinary income

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

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Question 32

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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 $105,000 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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Question 33

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A partner recognizes gain when he receives cash in excess of his outside basis in a liquidating distribution.

The partnership making an operating distribution will recognize gain or loss only when the partner that receives the distribution recognizes gain or loss.

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

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?

Martha is a 40% partner in the MMM Partnership with an outside basis of $50,000. MMM distributes $40,000 cash and accrual basis accounts receivable with a basis and fair market value of $20,000. Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

Katrina is a one-third partner in the KYR partnership (calendar year-end). Katrina decides she wants to exit the partnership and receives a proportionate distribution to liquidate her partnership interest on January 1. The partnership has no liabilities and holds the following assets as of January 1: $\begin{array} { l r r } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 1 8 0 , 0 0 0 } & \mathbf { \$ 1 8 0 , 0 0 0 } \\\text { Accounts receivable } & - 0 - & \mathbf { 2 4 0 , 0 0 0 } \\\text { Stock investment } & \mathbf { 7 5 , 0 0 0 } & \mathbf { 1 2 0 , 0 0 0 } \\\text { Land } & \underline { \mathbf { 3 0 0 , 0 0 0 } } & \underline { \mathbf { 3 6 0 , 0 0 0 } } \\\text { Totals } & \underline { \mathbf { 5 5 5 , 0 0 0 } } & \underline { \$ 900,000 }\end{array}$ Katrina receives one-third of each of the partnership assets. She has a basis in her partnership interest of $110,000. What is the amount and character of any recognized gain or loss to Katrina? What is Katrina's basis in the distributed assets?

Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and land with a fair value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $24,000. What is Tyson's basis in the distributed inventory and land?

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

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?

Shauna is a 50% partner in the SH Partnership. Shauna sells one-half of her interest to Kara for $60,000 cash. Just before the sale, Shauna's basis in her entire partnership interest is $150,000 including her $60,000 share of the partnership liabilities. SH's assets on the sale date are as follows: $\begin{array}{c}\begin{array}{lll}\\Cash\\Inventory\\\text{Land held for investment}\\Totals\\\end{array}\begin{array}{lll}\underline{\text { Basis }} \\\mathbf{8 0 , 0 0 0} \\\mathbf{6 0 , 0 0 0} \\\underline{\mathbf{1 6 0 , 0 0 0}} \\\$ \mathbf{3 0 0 , 0 0 0}\\\end{array}\begin{array}{lll}\underline{FMV}\\\mathbf{\$ 8 0 , 0 0 0} \\\mathbf{1 8 0 , 0 0 0} \\\underline{\mathbf{1 0 0 , 0 0 0}} \\\mathbf{\$ 3 6 0 , 0 0 0}\\\end{array}\end{array}$ What is the amount and character of Shauna's gain or loss on 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: $\begin{array}{l}\begin{array} { l r } &\underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash }&\mathbf { \$ 6 0 , 0 0 0 } & \mathbf { \$ 6 0 , 0 0 0 } \\\text { Capital asset (nondepreciable)}&\underline { \mathbf { 1 2 0 , 0 0 0 } } & \underline { 240,000 } \\\text { Total}&\underline { \mathbf { \$ 8 0 , 0 0 0 } } & \underline { \mathbf { \$ 3 0 0 , 0 0 0 } } \\\\\end{array}\\\begin{array} { l r } \text { Carmello, capital } &&&&& \$ 60,000 \\\text { Doug, capital } &&&&& 60,000 \\\text { Wendy, capital } &&&&& \underline { 60,000 } \\\text { Total } &&&&& \underline { \$ 180,000 }\end{array}\end{array}$ What is the amount 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?

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a liquidating distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is $20,000. What is the amount and character of Daniela's gain or loss from the distribution?

At the end of last year, Cynthia, a 20% 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?

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

Scott is a 50% partner in the LS Partnership. Scott has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution. On December 31, Scott receives an operating distribution of $9,000 cash and a parcel of land with a $21,000 fair market value and a $12,000 basis to the partnership. LS has no debt or hot assets. What is the amount and character of Scott's recognized gain or loss? What is Scott's basis in the distributed property? What is Scott's ending basis in his partnership interest?

Catherine is a 30% partner in the ACW Partnership with an outside basis of $20,000. ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest. Catherine recognizes a capital loss of $2,000 on the distribution.

Sarah is a 50% partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Sarah receives a proportionate operating distribution of $20,000 cash. What is the amount and character of Sarah's recognized gain or loss and what is her basis in her partnership interest?

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 treated as a capital asset, the disposal of which results in capital gain or loss.