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Tax Accounting Chapter 21 Quiz

Terms in this set (10)

Jackson is a 30 percent partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash. At the time of the sale, Jackson's basis in JJM is $64,000. JJM does not have any debt or hot assets.

What is Jackson's gain or loss on the sale of his interest?

-$48,000 capital gain
-$48,000 ordinary income
-$24,000 capital gain and $24,000 ordinary income
-Gain or loss cannot be determined.
$48,000 capital gain

$112,000 - $64,000

Jackson recognizes a gain determined as the difference between the amount realized on the sale and his basis in the partnership interest. Because JJM has no hot assets, the gain will be characterized as capital.
At the end of last year, Cynthia, a 20 percent partner in the five-person CYG partnership, has an outside basis of $28,500, including her $14,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $21,500 and the assumption of her share of CYG's debt. CYG has no hot assets.

What is the amount and character of Cynthia's recognized gain or loss on the sale?

-$7,000 capital loss
-$7,000 ordinary loss
-$7,000 capital gain
-$7,500 ordinary income
$7,000 capital gain

($21,500 + $14,000) - $28,500

Cynthia's gain is the difference between the amount realized ($21,500 cash plus $14,000 debt relief) and her outside basis ($28,500) for a $7,000 gain. The gain is capital because CYG has no hot assets.
Which of the following assets would not be classified as a hot asset?

-Inventory
-Depreciation recapture
-Cash
-Accounts receivable for a cash-method taxpayer
Cash


Hot assets include all assets except for cash, capital assets, and §1231 assets.
Daniel acquires a 30 percent interest in the PPZ Partnership from Paolo, an existing partner, for $39,500 of cash. The PPZ Partnership has borrowed $10,500 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

-$39,500
-$42,650
-$46,850
-$50,000
$42,650

$39,500 + ($10,500 x 30%)

Daniel's outside basis will include his $3,150 (30% × $10,500) share of the partnership liabilities.
Under which of the following circumstances will a partner recognize a gain from an operating distribution?

-A partner will never recognize a gain from an operating distribution.
-A partner will recognize a gain from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest.
-A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest.
-A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.
A partner will recognize a gain from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.
In which type of distribution may a partner recognize a loss on the distribution?

-Operating distributions
-Liquidating distributions
-Neither operating nor liquidating distributions
-Both operating and liquidating distributions
Liquidating distributions


Only in liquidating distributions may a partner recognize a loss. The more specific situation is where the partnership distributes only cash, unrealized receivables, and inventory and the sum of the bases of the distributed assets is less than the partner's basis in his partnership interest.
Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $36,000. On December 31, KH makes a proportionate operating distribution of $44,000 cash to Harrison.

What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

-$0 gain, $0 basis
-$8,000 capital gain, $0 basis
-$8,000 capital loss, $0 basis
-$8,000 capital gain, $36,000 basis
$8,000 capital gain, $0 basis

$44,000 - $36,000

Harrison recognizes a gain equal to the difference between his basis in KH and the distribution because he receives only money in the distribution and the amount exceeds his basis in KH. He allocates his entire basis in KH to the basis in the money received, resulting in $0 basis in KH after the distribution.
Which of the following statements is true regarding partnership operating distributions?

-Partners will never recognize a gain on an operating distribution.
-Partners receiving a distribution of property other than money will take a basis in the property equal to its fair market value.
-Partners will never recognize a loss on an operating distribution.
-None of the statements are true.
Partners will never recognize a loss on an operating distribution.
Which of the following statements regarding liquidating distributions is true?

-A partner will recognize a gain when the partnership distributes only money and the amount is greater than the partner's outside basis.
-A partner will recognize a gain when the partnership distributes only money and hot assets and the inside bases of the distributed assets are greater than the partner's outside basis.
-A partner will recognize a gain when the partnership distributes money, hot assets, and other property and the inside bases of the distributed assets are greater than the partner's outside basis.
-A partner will recognize a gain when the partnership distributes only money and the amount is less than the partner's outside basis.
A partner will recognize a gain when the partnership distributes only money and the amount is greater than the partner's outside basis.
Tyson is a 25 percent partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT Partnership interest is $20,000.

What is Tyson's basis in the distributed land?

-$0
-$4,000
-$8,000
-$16,000
$4,000
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