Question 1

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000.The partnership has assets with a basis of $1,600,000.What is the amount of the basis adjustment, if the partnership has a 754 election in place?

Accepted Answer

With a 754 election in place, the basis adjustment is allocated to the purchasing partner's share of the partnership assets. The amount of the adjustment is equal to the difference between the adjusted basis of the partnership assets and the basis of the partnership assets immediately before the transfer of the partnership interest.

In this case, the adjusted basis of the partnership assets is not given, so we cannot calculate the exact amount of the basis adjustment. However, we do know that the basis adjustment will be allocated to Han's share of the partnership assets, which is 25%. Therefore, choice C ($200,000 increase in Han's share of the basis in partnership assets) is the best answer.

Question 2

The STU Partnership, an electing Large Partnership, has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000, Sec.1231 gain $60,000, ordinary income $20,000, charitable contributions $15,000, and tax-exempt income $2,000.How much will be reported as long-term capital gains to its partners?

Accepted Answer

Since the partnership has no passive activities, the net long-term capital losses of $50,000 will offset the Sec. 1231 gain of $60,000, leaving a net Sec. 1231 gain of $10,000. This amount will be reported as long-term capital gains to the partners. The ordinary income, charitable contributions, and tax-exempt income are not relevant to this calculation.

Question 3

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 4

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...

Question 5

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.

Accepted Answer

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

Question 6

The AB, BC, and CD Partnerships merge into the ABCD Partnership.AB (owned by Austin and Ben)contributes assets worth $100,000.BC (owned by Ben and Charlie)contributes assets worth $200,000.CD (owned by Charlie and Dennis)contributes assets worth $300,000.The capital and profits interest in ABCD is owned by: Austin, 10%; Ben, 30%; Charlie, 25%; and Dennis, 35%.ABCD Partnership is a continuation of

Accepted Answer

Since the ABCD partnership is a continuation of one of the three partnerships, it must be the last partnership to be formed, which is CD. Therefore, the assets contributed by CD partnership will form the basis for the new partnership.

Question 7

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

Accepted Answer

Since PPP has a 754 election in effect, Patrick's share of the basis in the partnership assets will be adjusted. The amount of the adjustment will be equal to the difference between the fair market value of his one-third interest in the partnership ($500,000) and his pro-rata share of the partnership's adjusted basis in its assets (which is equal to one-third of the partnership's $1,500,000 value, or $500,000). Therefore, his basis in the partnership assets increases by $100,000, and this is the correct answer.

Question 8

The CHS Partnership's balance sheet presented below is prepared on a cash basis at September 30 of the current year.
   Cindy withdraws from the partnership under an agreement whereby she takes one-third of each of the three assets and assumes $10,000 of the notes payable.Her basis for the partnership interest before any distribution is $25,000.What gain/loss should she report for tax purposes?

Accepted Answer

The answer of The CHS Partnership's balance sheet presented below...

Question 9

When must a partnership make mandatory basis adjustments?

Accepted Answer

Mandatory basis adjustments are required when a sale of a partnership interest results in a substantial built-in gain or loss, which is defined as the difference between the partnership's adjusted basis in its assets and their fair market value at the time of the sale. The threshold for determining substantial built-in gain or loss is $250,000, so option D is the correct choice. Options A and B are incorrect because they do not consider the built-in gain or loss threshold, and option C is incorrect because it refers to distributions rather than sales of partnership interests.

Question 10

Patrick purchased a one-third interest in the PPP partnership for $600,000.At the time of the purchase, the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000.This year, PPP sells the land for $1,800,000.What is Patrick's recognized share of the gain on the sale of the land?

Accepted Answer

A) $1,800,000 - 1,500,000 = 300,000 gain. Patrick's share of the gain is $100,000, which is offset by the $100,000 754 adjustment. The 754 adjustment is 600,000 purchase price - (1,500,000/3) = 100,000.

Question 11

The LM Partnership terminates for tax purposes on July 15 when Latasha sells her 60% capital and profits interest to Zoe for $100,000.The partnership has no liabilities, and its assets at the time of termination are as follows:  Marika, a 40% partner in the LM Partnership, has a $64,800 basis in her partnership interest (outside basis)at the time of the termination.She has held her LM Partnership interest for three years at the time of the termination.The bases of Marika and Zoe in the new LM Partnership is:

Accepted Answer

When a partnership terminates, the partnership's assets are either distributed to its partners or sold, and the partnership is dissolved. In this case, Latasha sells her 60% capital and profits interest to Zoe for $100,000. As a result of this sale, the partnership terminates for tax purposes.

To determine the bases of Marika and Zoe in the new LM Partnership, we need to calculate the partnership's final net asset value (FNAV). FNAV is calculated by subtracting the partnership's liabilities from its assets.

FNAV = $120,000 (cash) + $50,000 (inventory) - $0 (liabilities) = $170,000

Marika's basis in the partnership interest before the sale is $64,800. Since she is a 40% partner in the partnership, her share of the FNAV is 40% x $170,000 = $68,000. Therefore, her basis in the new partnership is $68,000.

Zoe buys Latasha's 60% interest for $100,000. Zoe's basis in the new partnership is the amount she paid for the partnership interest plus her share of the FNAV. Zoe's share of the FNAV is 60% x $170,000 = $102,000. Therefore, Zoe's basis in the new partnership is $100,000 + $102,000 = $202,000.

The correct answer is choice C.

Question 12

Adnan had an adjusted basis of $11,000 for his interest in the Adnan and Donnell Partnership on December 31.On this date, Adnan received from the partnership, in complete liquidation of his interest, $10,000 cash and land with a $2,000 basis to the partnership and a $3,000 FMV.What is Adnan's basis for the land distributed to him?

Accepted Answer

The answer of Adnan had an adjusted basis of $11,000...

Question 13

The STU Partnership, an electing Large Partnership, has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000, Sec.1231 gain $60,000, ordinary income $20,000, charitable contributions $15,000, and tax-exempt income $2,000.How much will be reported as ordinary income to its partners?

Accepted Answer

B) [$20,000 - 10% (10,000 + 20,000)] = $17,000

Question 14

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...

Question 15

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 16

Which of the following statements is correct?

Accepted Answer

The Sec. 754 election applies to both sales and distributions. This allows a partnership to adjust the basis of its assets when there is a transfer of a partnership interest or a distribution of property to a partner, ensuring that the transferee's basis in the partnership's assets reflect the fair market value of the assets at the time of the transfer.

Question 17

Identify which of the following statements is true.

Accepted Answer

Option A is false because when a partnership is divided into two or more new partnerships, the resulting partnerships may or may not be considered new partnerships, depending on the circumstances. Option B is false because a partnership is publicly traded not only if its interests are traded on an established securities exchange but also if it has 500 or more partners. Option C is true. Option D is false because option C is true.

Question 18

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...

Question 19

Which of the following is valid reason for making a 754 election?

Accepted Answer

The answer of Which of the following is valid reason...

Question 20

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