Question 1

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

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 § 736b)  payments.
D)  Could arise if a distribution results in loss to the distributee partner.
E)  May be a § 736a)  payment.F) May receive § 736a)  payments.G) Probably treated as a general partner for § 736 purposesH) Conversion of an LLC to a C corporationI) Liquidation payments from this type of partnership may include § 736a)  payments.J) A § 736b)  payment.K) Adjustment designed to bring inside and outside bases into balance.L) Partnership asset basis is at least $250,000 > FMV.M) No correct match is provided.N) E) and G)
O) G) and L)

Question 2

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

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 § 736b)  payments.
D)  Could arise if a distribution results in loss to the distributee partner.
E)  May be a § 736a)  payment.F) May receive § 736a)  payments.G) Probably treated as a general partner for § 736 purposesH) Conversion of an LLC to a C corporationI) Liquidation payments from this type of partnership may include § 736a)  payments.J) A § 736b)  payment.K) Adjustment designed to bring inside and outside bases into balance.L) Partnership asset basis is at least $250,000 > FMV.M) No correct match is provided.N) G) and L)
O) B) and E)

Question 3

Match the following independent descriptions as hot i.e., ordinary income-producing)  or nonhot assets with the following statements.
-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) None of the above
E) All of the above

Question 4

Karli owns a 25% capital and profits interest in the calendar year KJDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $200,000. On that date, she receives a proportionate current nonliquidating) distribution of the following assets. $\begin{array}{lrr}&\text { Partnership's Basis in Asset} &\text { Asset's Fair Market Value }\
\text { Cash } & \$ 120,000 & \$ 120,000 \
\text { Inventory } & 50,000 & 60,000 \
\text { Land (held for investment) } & 70,000 & 100,000
\end{array}$

a. Calculate Karli's recognized gain or loss on the distribution if any.
b. Calculate Karli's basis in the inventory received.
c. Calculate Karli's basis in land received. The land is a capital asset.
d. Calculate Karli's basis for her partnership interest after the distribution.

Accepted Answer

the $120,000 cash distributed does not e...

Question 5

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

In a liquidating distribution that liquidates the partnership, each partner recognizes gain or loss equal to the difference between the value of assets received less the partner's basis in the partnership interest.

Accepted Answer

A) True 
 B)False

Question 8

In a proportionate liquidating distribution, Sam receives a distribution of $30,000 cash, accounts receivable basis of $0, fair market value of $50,000) , and land basis of $20,000, fair market value of $50,000) . In addition, the partnership repays all liabilities of which Sam's share was $40,000. Sam's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sam's basis in the accounts receivable and land, and how much gain or loss does he recognize?

Accepted Answer

A)   $0 basis in accounts receivable; $50,000 basis in land; $0 gain or loss.
B)   $0 basis in accounts receivable; $90,000 basis in land; $0 gain or loss.
C)   $50,000 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
D)   $50,000 basis in accounts receivable; $50,000 basis in land; $50,000 gain.
E)   $0 basis in accounts receivable; $70,000 basis in land; $30,000 loss.F) A) and E)
G) B) and D)

Question 9

Miguel contributed substantially appreciated property to the MR Partnership in year 1. In year 4, other property was distributed to Miguel. Which one of the following statements is most likely to be true regarding the contribution and/or distribution?

Accepted Answer

A)   Miguel recognizes precontribution gain in year 4 when the second property is distributed to him.
B)   Miguel recognizes the precontribution gain on an amended tax return for year 1 when the second property is distributed to him.
C)   The partnership recognizes the precontribution gain in year 4 and allocates that gain to all the partners.
D)   The partnership recognizes the precontribution gain in year 1 and allocates that gain to Miguel.
E)   Partnership contributions and distributions are tax-deferred transactions; when no cash is involved, no gain or loss is recognized.F) A) and E)
G) None of the above

Question 10

Match the following statements with the best match from the following choices. Choice M may be used more than once.
-Service-providing partnership

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 § 736b)  payments.
D)  Could arise if a distribution results in loss to the distributee partner.
E)  May be a § 736a)  payment.F) May receive § 736a)  payments.G) Probably treated as a general partner for § 736 purposesH) Conversion of an LLC to a C corporationI) Liquidation payments from this type of partnership may include § 736a)  payments.J) A § 736b)  payment.K) Adjustment designed to bring inside and outside bases into balance.L) Partnership asset basis is at least $250,000 > FMV.M) No correct match is provided.N) A) and C)
O) E) and G)

Question 11

Cynthia's basis in her LLC interest was $60,000, including her $40,000 share of the LLC's debt. In a proportionate liquidating distribution in which the LLC also liquidates, Cynthia receives cash of $50,000, and inventory with a basis of $3,000 and a fair market value of $5,000. Before the partnership liquidates, it repays all of its liabilities. Cynthia recognizes a gain of $30,000 on the distribution and takes a basis of $0 in the inventory.

Accepted Answer

A) True 
 B)False

Question 12

Match the following statements with the best match from the following choices. Choice K may be used more than once.
-Optional adjustment election

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, and then other assets.G) Does not eliminate the partner's interest in the partnership.H) Changes the partner's or the partnership's ordinary income potential.I) Any partnership assets other than cash, capital, or § 1231 assets.J) Sometimes treated as an unrealized receivable.K) No correct match provided.L) E) and K)
M) B) and H)

Question 13

Jack has a basis in a partnership interest of $300,000, including his $80,000 share of partnership debt. At the end of the current year, the partnership pays off its liabilities and makes a proportionate current nonliquidating)  distribution to its partners. Jack receives a parcel of land partnership basis = $120,000, value = $135,000)  and inventory partnership basis = $160,000, value = $180,000) . Following the distribution, what is Jack's basis in the land, inventory, and the partnership interest?

Accepted Answer

A)   $120,000 basis in land, $160,000 basis in inventory, $20,000 basis in partnership interest.
B)   $40,000 basis in land, $180,000 basis in inventory, $0 basis in partnership interest.
C)   $60,000 basis in land, $160,000 basis in inventory, $0 basis in partnership interest.
D)   $135,000 basis in land, $165,000 basis in inventory; $0 basis in partnership interest.
E)   $60,000 basis in land, $160,000 basis in inventory; $80,000 basis in partnership interest.F) B) and E)
G) A) and E)

Question 14

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property adjusted basis to the partnership of $10,000 and fair market value of $12,000) . The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

Accepted Answer

A)   $0 gain or loss; $10,000 basis in property.
B)   $0 gain or loss; $50,000 basis in property.
C)   $8,000 ordinary income; $0 basis in property.
D)   $8,000 capital gain; $10,000 basis in property.
E)   $8,000 capital gain; $0 basis in property.F) A) and B)
G) None of the above

Question 15

The Crimson Partnership is a service-providing consulting firm, and Jana is a 20% general partner with a $100,000 basis in her partnership interest. Crimson's 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). If Crimson distributes
$200,000 of cash to Jana in liquidation of her interest in the partnership and Crimson does not liquidate), Jana will recognize ordinary income of $80,000 and a capital gain of $20,000.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is correct regarding termination of a three-person partnership?

Accepted Answer

A)   The partnership can terminate only when it distributes all of its assets in a complete liquidation.
B)   Redemption of one partner's 60% interest under § 736 will terminate the partnership.
C)   If one partner dies, the partnership year closes, and the partnership must file a return as of the date of death.
D)   If Partner A dies without a buy-sell agreement in effect and Partner B buys Partner C's interest, the partnership terminates automatically.
E)   An incorporation of the partnership will terminate the partnership.F) A) and B)
G) All of the above

Question 17

On July 1, George is planning to retire from the GDP LLC where he is an active managing member owning a 60% interest. Capital is not a material income-producing factor to GDP. The LLC can either redeem his interest under
§ 736 or he can sell his interest to Dale, who currently owns a 20% interest. The LLC's operating agreement is silent regarding treatment of goodwill. As to George's alternatives, which one of the following statements is true?

Accepted Answer

A)   Under either alternative, on July 1, the partnership closes its books and starts a new tax year.
B)   Payments to George for his share of GDP's goodwill would be treated the same for either a sale or a redemption.
C)   George will report ordinary income related to his share of hot assets under either the sale or the redemption scenario.
D)   If GDP/Dale negotiate payments over several years, either an installment sale or a redemption over time would result in the same tax situation to George.
E)   All of the above statements are true.F) C) and D)
G) B) and D)

Question 18

Match the following independent descriptions as hot i.e., ordinary income-producing)  or nonhot assets with the following statements.
-Highly appreciated land held by the partnership for the purpose of subdividing and selling lots.

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) A) and C)

Question 19

Frank receives a proportionate current nonliquidating)  distribution from the AEF Partnership. The distribution consists of $10,000 cash and property adjusted basis to the partnership of $54,000 and fair market value of $60,000) . Immediately before the distribution, Frank's adjusted basis in the partnership interest was $50,000. His basis in the noncash property received is:

Accepted Answer

A)   $0.
B)   $40,000.
C)   $50,000.
D)   $54,000.
E)   $60,000.F) A) and B)
G) A) and C)

Question 20

Your client has operated a sole proprietorship for several years and is now interested in raising capital for expansion. client is considering forming either a C corporation or an LLC.
a. Describe the treatment of an LLC and discuss any advantages the LLC offers over the
C corporation.
b. Assume instead the client has previously operated as a C corporation. Describe the tax consequences of converting to an LLC.

Accepted Answer

a. The limited liability company LLC) ge...

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

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

Correct Answer
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Correct Answer
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Match the following statements with the best match from the following choices. Choice K may be used more than once. -Optional adjustment election

Correct Answer
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Which of the following statements is correct regarding termination of a three-person partnership?

Correct Answer
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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Step up

Correct Answer
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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Sales price of partnership interest

Correct Answer
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Correct Answer
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Miguel contributed substantially appreciated property to the MR Partnership in year 1. In year 4, other property was distributed to Miguel. Which one of the following statements is most likely to be true regarding the contribution and/or distribution?

Correct Answer
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the $120,000 cash distributed does not e...
View Answer

Correct Answer
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Match the following independent descriptions as hot i.e., ordinary income-producing) or nonhot assets with the following statements. -Highly appreciated land held by the partnership for the purpose of subdividing and selling lots.

Correct Answer
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In a liquidating distribution that liquidates the partnership, each partner recognizes gain or loss equal to the difference between the value of assets received less the partner's basis in the partnership interest.

Correct Answer
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Correct Answer
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For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Correct Answer
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Correct Answer
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a. The limited liability company LLC) ge...
View Answer

Correct Answer
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Match the following statements with the best match from the following choices. Choice M may be used more than once. -Service-providing partnership

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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Match the following statements with the best match from the following choices. Choice K may be used more than once. -Optional adjustment election

Correct AnswerverifiedShow Answer

Which of the following statements is correct regarding termination of a three-person partnership?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Miguel contributed substantially appreciated property to the MR Partnership in year 1. In year 4, other property was distributed to Miguel. Which one of the following statements is most likely to be true regarding the contribution and/or distribution?

Correct AnswerverifiedShow Answer

Correct Answerverifiedthe $120,000 cash distributed does not e...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Match the following independent descriptions as hot i.e., ordinary income-producing) or nonhot assets with the following statements. -Highly appreciated land held by the partnership for the purpose of subdividing and selling lots.

Correct AnswerverifiedShow Answer

In a liquidating distribution that liquidates the partnership, each partner recognizes gain or loss equal to the difference between the value of assets received less the partner's basis in the partnership interest.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The limited liability company LLC) ge...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Match the following statements with the best match from the following choices. Choice M may be used more than once. -Service-providing partnership

Correct AnswerverifiedShow Answer

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the $120,000 cash distributed does not e...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. The limited liability company LLC) ge...
View Answer

Correct Answer
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Correct Answer
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