Question 1

Identify which of the following statements is true.

Accepted Answer

The correct statement is D because: A) is false as the character of the gain to the partner depends on the partner's use of the property and holding period, not solely on its character in the hands of the partnership. B) is incorrect because Sec. 751's primary purpose is actually to prevent the conversion of ordinary income into capital gains, not the other way around. C) is false because unrealized receivables generally include rights to payment for services or for the sale of inventory items, not capital assets.

Question 2

The ABC Partnership owns the following assets on December 31. $$\begin{array} { | l | r | r | } 
\hline &  { \text { Basis } } &  { \text { FMV } } \
\hline \text { Cash } & \$ 20,000 & \$ 20,000 \
\hline \text { Unrealized receivables } & 0 & 40,000 \
\hline \text { Inventory } & \$ 20,000 & 30,000 \
\hline \text { Land (Sec. } 1231 \text { asset) } & 50,000 & 90,000 \
\hline
\end{array}$$ The indication that ABC owns substantially appreciated inventory is

Accepted Answer

Substantially appreciated inventory is indicated when the FMV of inventory and unrealized receivables exceeds their adjusted bases by more than 120%. Here, the FMV is $70,000 and the basis is $20,000, which is more than 120% of the basis.

Question 3

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV.The partnership has claimed $16,000 in depreciation on the machine since its purchase.If the machine is sold for its FMV,would TK Partnership have an unrealized receivable item?

Accepted Answer

The answer of The TK Partnership has two assets: $20,000...

Question 4

What is the definition of "substantially appreciated inventory"?

Accepted Answer

Substantially appreciated inventory refers to inventory and unrealized receivables with a fair market value (FMV) greater than 120% of their basis. This means that the value of the inventory or receivables has increased significantly from their original cost, which can have tax implications for the owner.

Question 5

The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000.The partnership has taken an $8,000 depreciation on the machine.The unrealized receivable related to the machine is

Accepted Answer

The unrealized receivable related to the machine is the difference between its fair market value (FMV) and its adjusted basis. The adjusted basis is the original cost minus any accumulated depreciation. Therefore, the adjusted basis of the machine in this case is $20,000 - $8,000 = $12,000. The unrealized receivable is then FMV - adjusted basis = $25,000 - $12,000 = $13,000. However, since the partnership only owns a 50% interest in the machine, their share of the unrealized receivable is $13,000 x 50% = $6,500. Since the question asks for the unrealized receivable related to the machine, the best choice is B) $5,000, which is the partnership's share of the unrealized receivable.

Question 6

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 7

When Rachel's basis in her interest in the RST Partnership is $40,000,she receives a current distribution of office equipment.The equipment has an FMV of $60,000 and a basis of $50,000.Rachel will not use the office equipment in a business activity.What tax issues should Rachel consider with respect to the distribution?

Accepted Answer

The answer of When Rachel's basis in her interest in...

Question 8

The Internal Revenue Code includes which of the following assets in the definition of Sec.751 properties?

Accepted Answer

The Internal Revenue Code includes substantially appreciated inventory in the definition of Sec. 751 properties. The other choices (cash, capital assets, Sec. 1231 assets) are not included in the definition of Sec. 751 properties.

Question 9

The definition of "unrealized receivable" does not include the

Accepted Answer

The answer of The definition of "unrealized receivable" does not...

Question 10

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?

Accepted Answer

The answer of Jerry has a $50,000 basis for his...

Question 11

Two years ago,Tom contributed investment land with a basis of $50,000 and 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 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?

Accepted Answer

The answer of Two years ago,Tom contributed investment land with...

Question 12

The XYZ Partnership owns the following assets on December 31: $$\begin{array} { | l | r | r | } 
\hline &  { \text { Basis } } & { \text { FMV } } \
\hline \text { Cash } & \$ 10,000 & \$ 10,000 \
\hline \text { Unrealized receivables } & 0 & 10,000 \
\hline\text { Inventory } & \$ 25,000 & 30,000 \
\hline
\end{array}$$ A partner has a 20% interest with a basis of $6,000 in XYZ before receiving a liquidating distribution of $10,000 cash.XYZ Partnership has no liabilities.His recognized gain is

Accepted Answer

The answer of The XYZ Partnership owns the following assets...

Question 13

Last year,Cara contributed investment land with an FMV of $24,000 and basis of $18,000 to the CDE Partnership.CDE made no distributions during last year,and Cara's basis in her partnership interest on December 31 of last year was $28,000.On January 1 of this year,the partnership distributed cash of $30,000 to Cara and distributed the land contributed by Cara to another partner,David.On the distribution date,the land had a $27,000 FMV.Assume the CDE Partnership reported no profit or loss this year.How much gain (if any)must Cara recognize as a result of the distributions? What is her basis in the partnership after the distributions?

Accepted Answer

The answer of Last year,Cara contributed investment land with an...

Question 14

The XYZ Partnership owns the following assets on December 31: $$\begin{array} { | l | r | r | } 
\hline &  { \text { Basis } } &{ \text { FMV } } \
\hline \text { Cash } & \$ 20,000 & \$ 20,000 \
\hline \text { Unrealized receivables } & 0 & 15,000 \
\hline \text { Inventory } & \$ 30,000 & 35,000 \
\hline \text { Land (Sec. } 1231 \text { asset) } & 40,000 & 70,000 \
\hline
\end{array}$$ By how much must XYZ reduce its unrealized receivables to avoid meeting the substantially appreciated inventory test?

Accepted Answer

The answer of The XYZ Partnership owns the following assets...

Question 15

For purposes of Sec.751,inventory includes all of the following except

Accepted Answer

Section 751 defines inventory as tangible personal property held primarily for sale to customers in the ordinary course of a trade or business. Capital assets or 1231 property and accounts receivable are not considered inventory under this definition. Therefore, choice A is the correct answer.

Question 16

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

Accepted Answer

The answer of For Sec.751 purposes,"substantially appreciated inventory" means property...

Question 17

Under Sec.751,unrealized receivables include potential Section 1245 or 1250 recapture on the partnership's depreciable property.

Accepted Answer

According to Sec. 751, unrealized receivables include potential recapture of Section 1245 or 1250 on the partnership's depreciable property.

Question 18

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 will Jerry's basis be in these assets?

Accepted Answer

The answer of Jerry has a $50,000 basis for his...

Question 19

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?

Accepted Answer

The answer of On November 30,Teri received a current distribution...

Question 20

The definition of "inventory" for purposes of Sec.751 includes

Accepted Answer

The definition of "inventory" for purposes of Sec. 751 includes items that would result in ordinary income or depreciation recapture if sold. Cash, land held for investment, and marketable securities not held by dealers do not fall under the definition of inventory for purposes of Sec. 751.

Quiz 10: Special Partnership Issues

Identify which of the following statements is true.

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV.The partnership has claimed $16,000 in depreciation on the machine since its purchase.If the machine is sold for its FMV,would TK Partnership have an unrealized receivable item?

What is the definition of "substantially appreciated inventory"?

The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000.The partnership has taken an $8,000 depreciation on the machine.The unrealized receivable related to the machine is

Identify which of the following statements is true.

The Internal Revenue Code includes which of the following assets in the definition of Sec.751 properties?

The definition of "unrealized receivable" does not include the

For purposes of Sec.751,inventory includes all of the following except

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

Under Sec.751,unrealized receivables include potential Section 1245 or 1250 recapture on the partnership's depreciable property.

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 will Jerry's basis be in these assets?

The definition of "inventory" for purposes of Sec.751 includes