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Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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Question 71

True/False

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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

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Question 72

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Match the following statements with the best match from the choices below. Note: Choice N may be used more than once. -Sales price of partnership interest

A) Includes the partner's share of partnership liabilities.
B) Could result from sale of a partnership interest for more than the partner's share of the inside basis of assets.
C) Liquidation payments from this type of partnership are always § 736(b) payments.
D) Could arise if a distribution results in loss to the distributee partner.
E) May be a § 736(a) payment.
F) May receive § 736(a) payments.
G) Probably treated as a general partner for § 736 purposes
H) Sale of more than 50% in less than 12 months.
I) Liquidation payments from this type of partnership may include § 736(a) payments.
J) A § 736(b) payment.
K) Adjustment designed to bring inside and outside bases into balance.
L) Partnership asset basis is at least $250,000 > FMV.
M) Would result if the partner contributes appreciated property to the partnership.
N) No correct match is provided.

O) B) and L)
P) D) and K)

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Question 73

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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.

The December 31, 2016, balance sheet of the BCD LLP reads as follows. $\begin{array}{lrr}&\text { Adjusted}\\&\text { Basis}&\text { FMV}\\\text { Cash } & \$ 210,000 & \$ 210,000 \\\text { Receivables } & -0- & 120,000 \\\text { Capital assets } & 42,000 &{6 9 , 0 0 0} \\\text { Total } & \mathbf{\$ 2 5 2 , 0 0 0} & \mathbf{\$ 3 9 9 , 0 0 0}\\\\\text { Ben, capital } & \$ 84,000 & \$ 133,000 \\\text { Christina, capital } & 84,000 & 133,000 \\\text { Danielle, capital } & 84,000 & 133,000 \\\text { Total } & \underline{\$ 252,000} & \underline{\$ 399,000} \\\end{array}$ 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, 2016, Christina (treated as a general partner) receives a distribution of $140,000 cash in liquidation of her partnership interest under § 736. Nothing is stated in the partnership agreement about goodwill. Christina's outside basis for the partnership interest immediately before the distribution is $84,000. How much is Christina's recognized gain from the distribution and what is the character of the gain?

In a proportionate liquidating distribution, WYX Partnership distributes to partner William cash of $40,000, cash basis accounts receivable (basis of $0, fair market value of $10,000), and land (basis of $30,000, fair market value of $50,000). William's basis was $80,000 before the distribution. On the liquidation, William recognizes a $20,000 gain, and he takes a basis of $10,000 in the accounts receivable, and $50,000 in the land.

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. -Distribution of cash of $100,000, representing the partner's share of the value of partnership equipment which has potential depreciation recapture of $25,000.

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. -Distribution of cash of $60,000 for a partner's share of unrealized receivables where the partner is a limited partner, and most of the partnership's income is derived from services.

Match the following statements with the best match from the choices below. Note: Choice L may be used more than once. -Inventory

Dan receives a proportionate nonliquidating distribution when the basis of his partnership interest is $30,000. The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500. Dan's basis in the noncash property is:

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. Assume Jaymo owns no other securities.

Which of the following statements, if any, about a multi-member LLC is false?

Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate nonliquidating distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000) , and land (basis to the partnership of $40,000 and fair market value of $42,000) . In addition, Mack's share of partnership debt decreased by $12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest (including debt share) following the distribution?