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

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Question 81

Multiple Choice

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Suzy owns a 30% interest in the JSD LLC. In liquidation of the entity, Suzy receives a proportionate distribution of $30,000 cash, inventory basis of $16,000, fair market value of $18,000) , and land basis of $25,000, fair market value of $30,000) . Suzy's basis in the entity immediately before the distribution was $80,000. As a result of the distribution, what is Suzy's basis in the inventory and land, and how much gain or loss does she recognize?

A) $0 basis in inventory; $25,000 basis in land; $0 gain or loss.
B) $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss.
C) $16,000 basis in inventory; $25,000 basis in land; $9,000 loss.
D) $18,000 basis in inventory; $32,000 basis in land; $0 gain or loss.
E) $16,000 basis in inventory; $25,000 basis in land; $39,000 loss..

F) B) and D)
G) A) and B)

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Question 82

True/False

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Two years ago, Marcus contributed land with a basis of $6,000 and a fair market value of $20,000 in exchange for a 30% interest in the MNO LLC. This year when the value was $25,000, that property was distributed to Jamal whose basis in the LLC interest was $50,000 before the distribution. Marcus recognizes a gain of $14,000 and increases his basis in his LLC interest by that same amount; Jamal takes a $20,000 basis in the distributed property.

A) True
B) False

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Question 83

Multiple Choice

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Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate current nonliquidating) distribution consisting of land held for investment basis of $100,000, fair market value of $130,000) and inventory basis of $80,000, fair market value of $70,000) . After the distribution, Megan's bases in the received assets are, respectively:

Generally, a distribution of property does not result in a gain to a partner on either a current or liquidating distribution. A situation in which a gain may arise, however, is when a partner contributed appreciated property to the partnership and that property is distributed back to that same contributing partner within seven years of the contribution.

Midway through the current tax year, Georgie sells her 40% interest in the GHI Partnership to new partner Kelly for $150,000, including Georgie's share of partnership liabilities. At the beginning of the tax year, Georgie's basis in her partnership interest was $40,000 excluding her share of partnership debt). The partnership reported income of $120,000 for the year, and Georgie's share of partnership debt was $50,000 at the sale date. Assume that the partnership uses a monthly proration of income.) On the sale date, the partnership's assets consist of cash $195,000), land basis of $90,000, fair market value of $120,000), and unrealized receivables basis of $0, fair market value of $60,000). Georgie will recognize ordinary income of $24,000 and a capital gain of $12,000, for a total of $36,000 on the sale.

Match the following statements with the best match from the following choices. Choice M may be used more than once. -Limited partner

Match the following independent descriptions as hot i.e., ordinary income-producing) or nonhot assets with the following statements. -Cash basis accounts receivable.

Match the following statements with the best match from the following choices. Choice K may be used more than once. -Disproportionate distribution

Jeremy is an active partner who owns a 30% interest in the JS LLP in which capital is not a material income- producing factor). Partnership assets consist of land fair market value of $200,000, basis of $140,000), accounts receivable fair market value of $200,000, basis of $0), and cash of $400,000. JS distributes $220,000 of the cash to Jeremy in liquidation of his interest. In addition, Jeremy is relieved of his $40,000 share of the LLP's liabilities. The total payment includes $20,000 for Jeremy's share of JS goodwill not stated in the partnership agreement). Jeremy's basis in the partnership interest including his share of the partnership's liabilities) is $120,000 immediately before the distribution. How much gain or loss does Jeremy recognize and what is its character? How much can the partnership deduct? Are any planning opportunities available to the LLP?

Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate current nonliquidating) distribution consisting of land held for investment with a basis to CAR of $40,000 value of $60,000) , and inventory with a basis of $40,000 value of $40,000) . After the distribution, Catherine's bases in the land and inventory are:

Match the following statements with the best match from the following choices. Choice M may be used more than once. -Partnership terminates

In a current nonliquidating) distribution, loss never is recognized.

Your client, Greg, contributed precontribution gain property to BIG LLC on December 31, 2019, in exchange for a 30% interest. a. Describe two types of distributions that might result in some or all of this precontribution gain being recognized by Greg. b. In general terms, what is the purpose of these rules?

Marcie is a 40% member of the M&A LLC. Her basis is $10,000 immediately before the LLC distributes to her $30,000 of cash and land basis to the LLC of $20,000 and fair market value of $25,000). As a result of the proportionate, current nonliquidating) distribution, Marcie recognizes a gain of $20,000 and her basis in the land is $0.

Melissa is a partner in a continuing partnership. At the end of the current year, the partnership makes a proportionate, current nonliquidating) distribution to Melissa of $50,000 cash, inventory basis of $22,000, fair market value of $20,000), and land basis of $30,000, fair market value of $60,000). Melissa's basis in the partnership interest was $90,000 before the distribution. What is Melissa's basis in the inventory, land, and partnership interest following the distribution? Show your calculations.

Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate current nonliquidating) distribution, the partnership also distributed property basis of $20,000, fair market value of $30,000) to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:

Cindy, a 20% general partner in the CDE Partnership, wants to retire and has approached the other partners about having the partnership buy her out. The partnership is a cash basis, service-oriented partnership in which Cindy is an active partner. The partnership's assets consist primarily of unrealized receivables and cash. The partnership also has substantial going concern value goodwill) which is probably its most valuable asset. Goodwill payments are not currently provided for in the partnership agreement, but the partnership agreement can be amended to include goodwill payments if that is advantageous. The other partners in the partnership are also active in the business and are not related to Cindy. Discuss from Cindy's viewpoint how you would structure the liquidation of her interest under § 736. Answer as if you are her advocate. Do you think the other partners will agree with this structure? If not, what structure would they prefer?

A general partnership can convert to either limited liability partnership or limited liability company status with no federal income tax liability; conversion of a C corporation to a partnership, however, would result in tax on any built- in gains.

Match the following statements with the best match from the following choices. Choice K may be used more than once. -Potential depreciation recapture

Match the following independent distribution payments in liquidation of a partner's interest in an ongoing partnership with the statements below. -Distribution of $25,000 cash for a partner's share of substantially appreciated inventory.