Solved by verified expert :1157. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,22
In a proportionate liquidating distribution in which the partnership is also
liquidated, Macy received cash of $10,000 and inventory (basis of $18,000 and
fair market value of $32,000). Immediately before the distribution, Macy’s
basis in the partnership interest was $40,000. Macy recognizes no gain or loss,
and her basis in the inventory is $30,000.
a.
True
b. False
1158. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,23
In a proportionate liquidating distribution in which the partnership is also
liquidated, Ralph received cash of $30,000, accounts receivable (basis of $0
and fair market value of $20,000), and a desk (basis of $0 and fair market
value of $1,000). Immediately before the distribution, Ralph’s basis in the
partnership interest was $40,000. Ralph realizes and recognizes a loss of
$10,000, and his basis is $0 in both the accounts receivable and the desk.
a.
True
b. False
1159. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,24
Several years ago, the Jaymo Partnership purchased 2,000 shares of ABCO stock
(publicly traded) for $40,000; the stock now has a fair market value of $90,000.
If this stock is distributed to Jason in liquidation of his 30% partnership
interest, it is treated as a cash distribution of $75,000 and a property
distribution of $15,000.
a.
True
b. False
1160. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,25
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.
True
b. False
1161. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,26
Mike contributed property to the MDB Partnership in 2008. At the time of the
contribution, the basis in the property was $30,000 and its value was $55,000.
In 2011, MDB distributed that property to partner Dana. Because distributions
from a partnership to a partner are generally nontaxable, neither Mike nor Dana
should recognize any gain on the distribution.
a.
True
b. False
1162. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,27
A disproportionate distribution arises when the partnership distributes a share
of partnership hot assets to one or more partners that is not the same as the
partner’s ownership interest in the partnership.
a.
True
b. False
1163. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,28
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).
a.
True
b. False
1164. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,29
A payment to a retiring general partner for his or her share of goodwill of a
partnership in which capital is not a material income-producing factor is
classified as a § 736(a) income payment and results in ordinary income to the
retiring partner and a current deduction to the partnership, if the goodwill
payment is not provided for in the partnership agreement.
a.
True
b. False
1165. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,30
The Crimson Partnership is a service provider. Its assets consist of unrealized
receivables (basis $0, value $200,000), cash of $200,000, and land (basis of
$280,000, value of $400,000). Assume 25% general partner Jill has a basis in
her partnership interest of $130,000. If the ongoing partnership distributes
the $200,000 cash to Jill in liquidation of her interest in the partnership,
she will recognize ordinary income of $50,000 and a capital gain of $20,000.
a.
True
b. False
1166. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,31
Tyler’s basis in his partnership interest is $110,000, including his share of
partnership debt. Sarah buys Tyler’s partnership interest for $60,000 cash and
she assumes Tyler’s $90,000 share of the partnership’s debt. If the partnership
owns no hot assets, Tyler will recognize a capital loss of $50,000.
a.
True
b. False
1167. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,32
Beth sells her 25% partnership interest to Katie for $50,000 cash on July 1 of
the current tax year. Katie also assumed Beth’s share of the partnership’s
liabilities. Beth’s basis in her partnership interest at the beginning of the
year was $40,000, including a $15,000 share of partnership liabilities. The
partnership’s income for the entire year was $100,000, and Beth’s share of
partnership debt was $10,000 as of the date she sold the partnership interest.
Assume the partnership has no hot assets and that its income is earned evenly
throughout the year. Beth recognizes a gain of $12,500 on the sale.
a.
True
b. False
1168. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,33
Nick sells his 25% interest in the LMNO Partnership to new partner Katrina for
$57,500. The partnership’s assets consist of cash ($100,000), land (basis of
$90,000; fair market value of $70,000), and inventory (basis of $40,000; fair
market value of $60,000). Nick’s basis in his partnership interest was $57,500.
On the sale, Nick will recognize ordinary income of $5,000 and a capital loss
of $5,000.
a.
True
b. False
1169. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,34
A partnership has accounts receivable with a basis of $0 and a fair market
value of $20,000 and depreciation recapture potential of $30,000. All other
assets of the partnership are either cash, capital assets, or § 1231 assets. If
a purchaser acquires a 40% interest in the partnership from another partner,
the selling partner will be required to recognize ordinary income of $20,000.
a.
True
b. False
1170. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,35
If a partnership incorporates, it is always deemed to first distribute all of
its assets and liabilities to the partners in complete liquidation. Then the
partners are deemed to contribute those assets to the new corporation (with the
corporation assuming the related liabilities) in a transaction that qualifies
under § 351.
a.
True
b. False
1171. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,36
In the year a donor gives a partnership interest to a donee, their share of the
partnership’s income is prorated between the donor and donee.
a.
True
b. False
1172. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,37
A partnership is required to make a downward adjustment to the basis of its
assets if a partnership interest is sold and if the total decline in value of
partnership assets is more than $250,000.
a.
True
b. False
1173. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,38
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.
a.
True
b. False
1174. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,39
The MBA Partnership makes a § 736(b) cash payment of $20,000 to partner Amanda
in liquidation of her interest in the partnership. The partnership owns no hot
assets. Amanda’s basis in her partnership interest before the distribution was
$50,000. If the partnership has a § 754 election in effect, it will record a
$30,000 decrease in its inside basis in partnership assets, affecting all the
remaining partners in the partnership.
a.
True
b. False
1175. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,40
Jeremy sold his 40% interest in the HIJ Partnership to Ashley for $400,000. The
inside basis of all partnership assets was $600,000 at the time of the sale. If
the partnership makes a § 754 election, it will record a $160,000 step-up in
the basis of the partnership assets, and the step-up will be attributed solely
to Ashley.
a.
True
b. False
1176. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,41
A partnership continues in existence unless one of the following happens: 1)
all assets are distributed to the partners in liquidation of the partnership,
or 2) one partner buys the interest of the second partner in a two partner
partnership (resulting in a single owner of the entity).
a.
True
b. False
1177. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,42
Kyle gifts a 40% interest in his consulting business to his daughter Amy. For
the current tax year, the KA Partnership reports income of $100,000. Kyle’s
services to the partnership were valued at $40,000. For the current tax year,
Amy would report a $24,000 share of the partnership’s income.
a.
True
b. False
1178. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,43
Rex and Scott operate a law practice in partnership form. Because Rex and Scott
are brothers, the partnership is subject to the family partnership income
reallocation rules.
a.
True
b. False
1179. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,44
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.
a.
True
b. False
