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Exam 10: Special Partnership Issues

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Question 1

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On November 30, Teri received a current distribution of cash of $4,000, marketable securities with a basis of $24,000 and an FMV of $30,000, and inventory with a basis of $2,000 and an FMV of $6,000. Prior to the distribution, Teri's basis in her interest in the partnership was $30,000. (There is no Sec. 751 exchange as a result of the distribution.)How much gain (if any)must Teri recognize as a result of the distribution?

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Question 2

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Tony sells his one-fourth interest in the WindyCity Partnership to Bill for $100,000 cash when the partnership's assets are as follows: The partnership has no liabilities on the sale date. Tony's basis in his partnership interest on the date of the sale is $60,000. What is the amount of gain realized by Tony on the sale of his partnership interest?

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Question 3

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Identify which of the following statements is true.

For Sec. 751 purposes, "substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis.

Rod owns a 65% interest in the RRR Partnership, a general partnership, which he sells to the two remaining partners - Roger and Regis. The three partners have agreed that Rod will receive $160,000 in cash from the sale. Rod's basis in the partnership interest before the sale is $125,000, which includes his $35,000 share of partnership recourse liabilities. The partnership has assets with a $310,000 FMV and a $210,000 adjusted basis. What issues should Rod, Roger, and Regis consider before this sale takes place?

Two years ago, Tom contributed investment land with a basis of $50,000 and an FMV of $62,000 to the RST Partnership. This year, Tom has a basis in his partnership interest of $53,000 when he receives a current distribution of $14,000 cash and inventory with a basis of $35,000 and an FMV of $52,000. (There is no Sec. 751 exchange in connection with the inventory distribution.)The partnership continues to hold the land Tom contributed. How much gain (if any)must Tom recognize as a result of this distribution?

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money, accounts receivable having a zero basis to the partnership, and land having a $28,000 basis to the partnership. What is Jerry's basis in his partnership interest after the distribution?

Identify which of the following statements is true.

Kenya sells her 20% partnership interest having a $28,000 basis to Ebony for $40,000 cash. At the time of the sale, the partnership has no liabilities and its assets are as follows: Kenya and Ebony have no agreement concerning the allocation of the sales price. Ordinary income recognized by Kenya as a result of the sale is

Brown Company recently has been formed as a limited liability company (LLC). Brown Company is owned equally by three individuals-Gene, Susan, and Sandra-all of whom have substantial income from other sources. Brown is a manufacturing firm and expects to earn approximately $130,000 of ordinary income and $30,000 of long-term capital gain each year for the next several years. Gene will be a full-time manager and will receive a salary of $60,000 each year. What tax issues should the owners consider regarding the LLC's initial year of operations?

Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago. This year the land is distributed to Sergio, another partner in the partnership. At the time of distribution, the land had a $12,000 FMV. What is the impact of the distribution on Mirabelle's partnership basis?

Bart has a partnership interest with a $32,000 basis. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $9,000, basis $10,000) , inventory (FMV $8,000, basis $4,000) , investment land (FMV $7,000, basis $4,000) , and building (FMV $20,000, basis $8,000) . No depreciation recapture applies with respect to the building. The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. Bart's basis in the building is

The sale of a partnership interest always results in capital gain or loss rather than ordinary income.

What is an electing large partnership? What are the advantages to the partnership of electing to be taxed under the electing large partnership rules?

Identify which of the following statements is true.

The Tandy Partnership owns the following assets on December 31: Is the partnership's inventory considered to be substantially appreciated for purposes of Sec. 751? Show your work.

A partnership terminates for federal income tax purposes if

Susan contributed land with a basis of $6,000 and an FMV of $10,000 to the SH Partnership two years ago to acquire her partnership interest. This year, the land is distributed to Harry when its FMV is $11,000. No other distributions have been made since Susan became a partner. When the land is distributed, the partnership's basis in the land immediately before distribution is increased by

Quinn and Pamela are equal partners in the QP Partnership. On December 30 of the current year, the QP Partnership agrees to liquidate Quinn's partnership interest for a cash payment on December 30 of each of the next five years. What tax issues should Quinn and Pamela consider with respect to the liquidation of Quinn's partnership interest?