Question 1

The Crimson Partnership is a service provider. Its assets consist of unrealized receivables (basis of $0, fair market value of $400,000), cash of $300,000, and land (basis of $200,000, fair market value of $300,000). Assume 20% general partner Jana has a basis in her partnership interest of $100,000. If the ongoing partnership distributes $200,000 of cash to Jana in liquidation of her interest in the partnership, she will recognize ordinary income of $80,000 and a capital gain of $20,000.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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 purposesH) 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) A) and B)
P) I) and K)

Question 3

At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000. She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $40,000) , and land (basis of $30,000, fair market value of $50,000) . After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are:

Accepted Answer

A)  $0; $30,000; and $50,000.
B)  $0; $50,000; and $30,000.
C)  $40,000; $30,000; and $10,000.
D)  $40,000; $40,000; and $0.
E)  None of the above.F) C) and D)
G) C) and E)

Question 4

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 $10,000 to a limited partner for goodwill, where goodwill is not provided for in the partnership agreement.

Accepted Answer

A)  A payment for the partner's share of partnership income under § 736(a) .
B)  A payment for the partner's share of partnership property under § 736(b) .
C)  The payment includes both a § 736(a)  and a § 736(b)  element.D) A) and C)
E) A) and B)

Question 5

Misha receives a proportionate nonliquidating distribution when the basis of his partnership interest is $60,000. The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000, fair market value of $20,000) . How much gain or loss does Misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

Accepted Answer

A)  $0 gain or loss; $10,000 basis in inventory; $0 basis in partnership interest.
B)  $0 gain or loss; $20,000 basis in inventory; $50,000 basis in partnership interest.
C)  $20,000 capital gain; $0 basis in inventory; $0 basis in partnership interest.
D)  $20,000 capital gain; $10,000 basis in inventory; $0 basis in partnership interest.
E)  $20,000 ordinary income; $0 basis in inventory; $20,000 basis in partnership interest.F) All of the above
G) B) and E)

Question 6

Mark contributed property to the MDB Partnership in 2012. At the time of the contribution, the basis in the property was $40,000 and its value was $50,000. In 2016, MDB distributed that property to partner Dara. Because this is a distribution of precontribution gain property, MBD (the partnership) may be required to recognize a gain that is allocated to all of the partners.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true regarding the sale of a partnership interest?

Accepted Answer

A)  The selling partner's share of partnership liabilities is disregarded in determining the proceeds from the sale of a partnership interest.
B)  For purposes of computing the selling partner's gain or loss, the partner's basis in the partnership interest is determined as of the last day of the partnership tax year ending before the year in which the interest is sold.
C)  If a partner sells an interest in a partnership, income related to that interest for the year of the sale is allocated to the purchaser.
D)  The selling partner could be required to report both ordinary income and a capital gain or loss on sale of the partnership interest.
E)  The partner's share of partnership "hot assets" is disregarded in determining the character of the partner's gain on the sale of the partnership interest.F) C) and E)
G) A) and B)

Question 8

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) a majority of the partners vote to adopt a plan of liquidation of the partnership.

Accepted Answer

A) True 
 B)False

Question 9

Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate 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 land and inventory are, respectively:

Accepted Answer

A)  $100,000 (land)  and $20,000 (inventory) .
B)  $120,000 (land)  and $0 (inventory) .
C)  $50,000 (land)  and $70,000 (inventory) .
D)  $40,000 (land)  and $80,000 (inventory) .
E)  None of the above.F) A) and B)
G) A) and C)

Question 10

If one partner dies in a two partner partnership, the estate cannot be a partner, so the partnership is terminated.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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 purposesH) 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) C) and F)
P) F) and L)

Question 12

Nicholas is a 25% owner in the DDBN LLC (a calendar year entity) . At the end of the last tax year, Nicholas's basis in his interest was $50,000, including his $20,000 share of LLC liabilities. On July 1 of the current tax year, Nicholas sells his LLC interest to Anna for $80,000 cash. In addition, Anna assumes Nicholas's share of LLC liabilities, which, at that date, was $15,000. During the current tax year, DDBN's taxable income is $120,000 (earned evenly during the year and allocated using the daily proration method) . Nicholas's share of the LLC's unrealized receivables is valued at $6,000 ($0 basis) . At the sale date, what is Nicholas's basis in his LLC interest, how much gain or loss must he recognize, and what is the character of the gain or loss?

Accepted Answer

A)  $45,000 basis; $6,000 ordinary income; $44,000 capital gain.
B)  $60,000 basis; $6,000 ordinary income; $29,000 capital gain.
C)  $60,000 basis; $35,000 capital gain.
D)  $75,000 basis; $0 ordinary income; $20,000 capital gain.
E)  $75,000 basis; $6,000 ordinary income; $14,000 capital gain.F) A) and D)
G) A) and C)

Question 13

Which of the following statements about the transfer of a partnership interest is not true?

Accepted Answer

A)  The seller's adjusted basis for the partnership interest is increased by the seller's share of undistributed partnership income (or reduced by partnership loss)  for the portion of the partnership's taxable year ending on the date of the sale.
B)  The partnership taxable year generally does not close with respect to a partner who transfers a partnership interest at death; all amounts are allocated to the successor.
C)  The amount realized on the sale of a partnership interest is the sum of any money and the fair market value of any property received for the interest, plus the selling partner's share of partnership liabilities under § 752.
D)  With respect to a transfer of a partnership interest by gift, all partnership gain, loss, credit, etc., items are allocated between the donor and the donee.
E)  All of the above are true statements.F) D) and E)
G) A) and C)

Question 14

The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership also liquidated: $25,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $5,000, fair market value of $15,000). James's basis in his partnership interest was $85,000 immediately before the distribution. James will allocate bases of $40,000 to parcel A and $20,000 to parcel B, and he will have no remaining basis in his partnership interest.

Accepted Answer

A) True 
 B)False

Question 15

The BAM Partnership distributed the following assets to partner Barbie in a proportionate nonliquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $25,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $15,000 each to the two land parcels, and her basis in her partnership interest will be reduced to $0.

Accepted Answer

A) True 
 B)False

Question 16

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $40,000) , and land (basis of $40,000, fair market value of $50,000) . In addition, the partnership repays all liabilities, of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

Accepted Answer

A)  $0 basis in accounts receivable; $0 basis in land; $40,000 gain.
B)  $0 basis in accounts receivable; $30,000 basis in land; $0 gain or loss.
C)  $0 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
D)  $40,000 basis in accounts receivable; $20,000 basis in land; $0 gain.
E)  $40,000 basis in accounts receivable; $20,000 basis in land; $100,000 gain.F) D) and E)
G) B) and D)

Question 17

Match the following statements with the best match from the choices below. Note: Choice N may be used more than once.
-Mandatory step down

Accepted Answer

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 purposesH) 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) D) and E)
P) I) and N)

Question 18

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

Accepted Answer

A)  Cash basis accounts receivable, for example.
B)  Fair market value exceeds 120% of basis.
C)  Inside basis of partnership property can be adjusted to reflect the purchase price paid.
D)  Terminates the partner's interest in the partnership.
E)  Ordinary income-producing items.F) Cash, then inventory and unrealized receivables, then other assets.G) Does not eliminate the partner's interest in the partnership.H) Liquidation of the partner's interest in hot assets.I) Changes the partner's or the partnership's ordinary income potential.J) Any partnership assets other than cash, capital, or § 1231 assets.K) Sometimes treated as an unrealized receivable.L) No correct match provided.M) A) and C)
N) H) and L)

Question 19

Match the following independent descriptions as "hot" (i.e., ordinary income-producing)  or nonhot assets with the statements below.
-Inventory with a basis of $10,000 and a fair market value of $10,500.

Accepted Answer

A)  Hot assets for purposes of distributions, liquidation of a partnership interest under § 736, and sale of a partnership interest.
B)  May be a hot asset for some but not all the purposes stated in (a) .
C)  Not a hot asset.D) A) and B)
E) None of the above

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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 $10,000 to a limited partner for goodwill, where goodwill is not provided for in the partnership agreement.

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

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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. -Step down

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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. -Mandatory step down

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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) a majority of the partners vote to adopt a plan of liquidation of the partnership.

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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. -Unstated goodwill

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If one partner dies in a two partner partnership, the estate cannot be a partner, so the partnership is terminated.

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Which of the following statements is true regarding the sale of a partnership interest?

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Match the following independent descriptions as "hot" (i.e., ordinary income-producing) or nonhot assets with the statements below. -Inventory with a basis of $10,000 and a fair market value of $10,500.

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Which of the following statements about the transfer of a partnership interest is not true?

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Exam 11: Partnerships Distributions Transfer of Interests and Terminations

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 $10,000 to a limited partner for goodwill, where goodwill is not provided for in the partnership agreement.

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

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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. -Step down

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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. -Mandatory step down

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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) a majority of the partners vote to adopt a plan of liquidation of the partnership.

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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. -Unstated goodwill

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If one partner dies in a two partner partnership, the estate cannot be a partner, so the partnership is terminated.

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Which of the following statements is true regarding the sale of a partnership interest?

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Match the following independent descriptions as "hot" (i.e., ordinary income-producing) or nonhot assets with the statements below. -Inventory with a basis of $10,000 and a fair market value of $10,500.

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Which of the following statements about the transfer of a partnership interest is not true?

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