Partnership Tax Finals

a. The partner recognizes gain on the distribution - increase. b. The partner recognizes a loss on the distribution - decrease. c. The partner takes bases in distributed assets that are greater than their bases to the partnership - decrease. d. The partner takes bases in distributed assets that are less than their bases to the partnership - increase.

For each of the four distribution situations in which the bases of partnership assets will be adjusted, which does the partnership have, an increase in partnership asset bases or a decrease?

They are deemed to be current distributions made on the last day of the partnership's taxable year, after increasing/decreasing the partner's basis for the partner's share of the partnership income/loss

How are "advances or drawings of money or property against a partner's distributive share of income" treated?

Increase in basis - Allocated first to properties with unrealized appreciation based on their relative unrealized appreciation, then allocated based on relative fair market values. Decrease in basis - Allocated first to properties with unrealized depreciation based on their relative unrealized depreciation, then allocated based on relative bases, as adjusted.

How is a Code Sec. 734(b) adjustment (a result of a distribution) allocated among the partnership properties within a class?

NO.

If there is no Code Sec. 754 election in effect, can the distribution of money and/or property affect the bases of partnership assets?

a. If the adjustment is due to the partner recognizing a gain or loss on a distribution, the adjustment (positive for a gain, negative for a loss) is allocated solely to the partnership's capital assets. b. If the adjustment is due to the increase or decrease in the bases of distributed partnership assets, the adjustment should be allocated to the remaining partnership assets that are of a character similar to that (either capital or ordinary) of the distributed property whose basis was increased or decreased

In general, how will a Code Sec. 734(b) adjustment be allocated between different classes of partnership property?

Her net assumption of liability is $72,000 - (1/3)($72,000) = $48,000, which is treated as a contribution of cash to the partnership, increasing her basis to $55,000. The distribution of property would presumably be accounted for immediately afterward, reducing her basis to $0 and resulting in a basis in the property in her hands of $55,000.

Partner D of the equal DEF partnership has a basis in her partnership interest of $7,000. The partnership distributes property to her with a FMV = $102,000, basis = $90,000, and an associated liability of $72,000. What is her basis in the partnership and the property after the distribution?

The cash distribution will reduce her basis to $10,000 ($50,000 - $40,000), and her basis in the property will be limited to that amount, and be $10,000. After the distribution of the property her basis in the partnership interest will be $0. She will recognize no gain on the distribution.

Partner N of the calendar-year LMN partnership has a basis in her partnership of $50,000 at the beginning of the year. She is distributed cash of $40,000 on Feb. 1 and property with a FMV of $30,000 and a basis of $30,000 on Nov. 1. Neither of these distributions is considered a draw on current partnership income. What is her gain, if any, her basis in her partnership after each distribution, and her basis in the property?

If they are distributed simultaneously, the cash is deemed to be distributed first, and the answer is the same. (The cash distribution will reduce her basis to $10,000 ($50,000 - $40,000), and her basis in the property will be limited to that amount, and be $10,000. After the distribution of the property her basis in the partnership interest will be $0. She will recognize no gain on the distribution.)

Partner N of the calendar-year LMN partnership has a basis in her partnership of $50,000 at the beginning of the year. She is distributed cash of $40,000 on Feb. 1 and property with a FMV of $30,000 and a basis of $30,000 on Nov. 1. Neither of these distributions is considered a draw on current partnership income. What is your answer if the cash and property were distributed simultaneously?

If the dates were switched, her basis in the partnership interest would be reduced to $20,000 ($50,000 - $30,000) by the distribution of the property. After that, the cash distribution would reduce her basis to $0 and result in a gain of $20,000 ($40,000 - $20,000 remaining basis).

Partner N of the calendar-year LMN partnership has a basis in her partnership of $50,000 at the beginning of the year. She is distributed cash of $40,000 on Feb. 1 and property with a FMV of $30,000 and a basis of $30,000 on Nov. 1. Neither of these distributions is considered a draw on current partnership income. What would your answer be if the dates of the two distributions were switched?

1. All of the partnership's liabilities become payable in full, 2. All of the partnership's assets (except for property contributed to secure a liability) have a zero value, 3. all of the property is sold for no consideration (except for relief of non-recourse debt), 4. all gains and losses from the sale are allocated to the partners, and 5. The partnership liquidates.

The constructive liquidation test for allocation of partnership recourse liabilities involves which five hypothetical events?

The $30,000 draw against earnings and W's $15,000 share of the reduction in liabilities are treated as a distribution on the last day of the taxable year. The $30,000 distribution of cash would reduce W's basis in the partnership to $10,000. W's share of the income of the partnership would increase his basis by $50,000 to $60,000. The $30,000 draw against earnings and W's $15,000 share of the reduction in liabilities would reduce W's basis to $15,000.

W is a partner in the equal WXYZ partnership. At the beginning of the year, his basis in his partnership interest is $40,000. On Feb. 1, W takes a draw against earnings of $30,000. On June 1, the partnership pays off $60,000 of debt. On Sept. 1, W gets a distribution of cash of $30,000 that is not a draw against earnings. The partnership's income from the year is $200,000. What is the effect of each of these items on W's basis?

a. The partner recognizes gain on the distribution. b. The partner recognizes a loss on the distribution. c. The partner takes bases in distributed assets that exceed their bases to the partnership. d. The partner takes bases in distributed assets that are less than their bases to the partnership.

What are the four situations related to partnership distributions in which the bases of partnership assets will be adjusted if a Code Sec. 754 election is in effect?