Question 1

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

Accepted Answer

Inventory, for purposes of Sec. 751, includes items held for sale in the ordinary course of business and accounts receivable. Capital assets or 1231 property are specifically excluded from the definition of inventory for Sec. 751.

Question 2

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

Accepted Answer

The definition of "inventory" for purposes of Sec.751 includes depreciation recapture potential on Sec.1231 assets. Cash, land held for investment, and marketable securities not held by dealers are not considered inventory for purposes of Sec.751.

Question 3

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 the fair market value (FMV) and the basis of the machine, minus the accumulated depreciation.

Unrealized receivable = FMV - Basis - Accumulated Depreciation

= $25,000 - $20,000 - $8,000

= $5,000

Therefore, the correct choice is B) $5,000.

Question 4

Carlos has a basis in his partnership interest of $30,000.He receives a current distribution of $6,000 cash,unrealized receivables (FMV $11,000,basis $10,000),inventory (FMV $8,000,basis $4,000),land held as an investment (FMV $7,000,basis,$6,000),and building (FMV $21,000,basis $9,000).The partners' relative interests in the Sec.751 assets do not change as a result of the current distribution.Carlos's basis in the building is

Accepted Answer

The answer of Carlos has a basis in his partnership...

Question 5

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

Accepted Answer

When a partnership distributes its assets, any gain on the sale of Sec. 751 assets (such as unrealized receivables, inventory, and investment land) is treated as ordinary income instead of capital gain. In this case, Bart received $9,000 in Sec. 751 assets with a basis of $14,000 ($10,000 + $4,000). This means that he has a $5,000 gain that is subject to ordinary income tax.

However, the building is not a Sec. 751 asset and does not result in a tax consequence upon distribution. Therefore, Bart's basis in the building remains the same at $8,000.

Question 6

Identify which of the following statements is true.

Accepted Answer

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

Question 7

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

Accepted Answer

The Internal Revenue Code includes inventory, which is substantially appreciated, in the definition of Sec. 751 properties.

Question 8

Identify which of the following statements is true.

Accepted Answer

A) This statement is false because if the partnership distributes the contributed asset back to the contributing partner in a nonliquidating distribution, the precontribution gain is not recognized at that time. B) The partner's basis in the partnership interest is reduced by the partnership's basis in the property distributed, not the FMV. C) Reducing the basis of the partnership interest to zero does not automatically terminate the partner's interest in the partnership; it may result in a negative capital account, but the interest itself is not terminated solely by this action.

Question 9

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 is important for tax purposes as it triggers specific rules for reporting and recognizing income. Choices A and C are incorrect because they do not include the unrealized receivables component, which is also necessary for the definition of substantially appreciated inventory.

Question 10

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 11

The definition of "unrealized receivable" does not include the

Accepted Answer

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

Question 12

The ABC Partnership owns the following assets on December 31.  The indication that ABC owns substantially appreciated inventory is

Accepted Answer

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

Question 13

Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money,plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375,and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000.What is the basis in Tenika's hands of the distributed property?

Accepted Answer

The answer of Tenika has a $10,000 basis in her...

Question 14

Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money,plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375,and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000.What is Tenika's basis for the plastic tubes and drip irrigation pipe?

Accepted Answer

The answer of Tenika has a $10,000 basis in her...

Question 15

Identify which of the following statements is true.

Accepted Answer

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

Question 16

The XYZ Partnership owns the following assets on December 31:  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 17

The XYZ Partnership owns the following assets on December 31:  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 18

Danielle has a basis in her partnership interest of $12,000.She receives a current distribution of $8,000 cash and equipment with a basis of $7,000.There is no potential gain under Sec.737.What is her basis in the equipment?

Accepted Answer

Danielle's basis in the equipment is $4,000. This is calculated by first reducing her basis in the partnership by the cash received ($12,000 - $8,000 = $4,000). Since there is no potential gain under Sec. 737, the remaining basis in her partnership interest is allocated to the equipment.

Question 19

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to

Accepted Answer

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to the partner's predistribution basis in his partnership interest. This means that the partner's basis in the distributed property cannot exceed the basis they had in their partnership interest before the distribution.

Question 20

Identify which of the following statements is true.

Accepted Answer

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

Quiz 19: Special Partnership Issues

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

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

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?

Identify which of the following statements is true.

What is the definition of "substantially appreciated inventory"?

Identify which of the following statements is true.

The definition of "unrealized receivable" does not include the

The ABC Partnership owns the following assets on December 31. The indication that ABC owns substantially appreciated inventory is

Identify which of the following statements is true.

The XYZ Partnership owns the following assets on December 31: 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

The XYZ Partnership owns the following assets on December 31: By how much must XYZ reduce its unrealized receivables to avoid meeting the substantially appreciated inventory test?

Danielle has a basis in her partnership interest of $12,000.She receives a current distribution of $8,000 cash and equipment with a basis of $7,000.There is no potential gain under Sec.737.What is her basis in the equipment?

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to

Identify which of the following statements is true.