1231. CHAPTER 11â??PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,96 Susan is a one-fourth…

1231. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,96
Susan is a one-fourth limited partner in the SJ Partnership in which capital is
not a material income-producing factor. Partnership assets consist of land
(fair market value of $100,000, basis of $80,000), accounts receivable (fair
market value of $100,000, basis of $0) and cash of $200,000. SJ distributes $100,000
of the cash to Susan in liquidation of her interest. Susan’s basis in the
partnership interest was $70,000 immediately before the distribution. How much
gain or loss does Susan recognize and what is its character? How much can the
partnership deduct?

1232. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,97
On August 31 of the current tax year, the balance sheet of the RBD General
Partnership is as follows:

Basis

FMV

Cash
Receivables
Capital assets
Total

Nonrecourse debt
Rachel, capital
Barry, capital
Dale, capital
Total

$150,000
–0–
600,000
$750,000

$150,000
200,000
200,000
200,000
$750,000

$150,000
90,000
660,000
$900,000

$150,000
250,000
250,000
250,000
$900,000

On that date, Rachel sells her one-third partnership interest to Lisa for
$300,000, including cash and relief of Rachel’s share of the nonrecourse debt.
The nonrecourse debt is shared equally among the partners. Rachel’s outside
basis for her partnership interest is $250,000. How much capital gain and/or
ordinary income will Rachel recognize on the sale?

1233. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,98
Hannah sells her 25% interest in the HIJK Partnership to Alyssa for $120,000
cash. At the end of the year prior to the sale, Hannah’s basis in HIJK was
$70,000. The partnership allocates $15,000 of income to Hannah for the portion
of the year she was a partner. On the date of the sale, the partnership assets
and the agreed fair market values were as follows.

Basis

FMV

Cash
Accounts Receivable
Land
Total

$100,000
–0–
240,000
$340,000

$100,000
80,000
220,000
$400,000

Determine the amount and character of any gain that Hannah recognizes on the
sale.

1234. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS,99
The December 31, 2011, balance sheet of the calendar-year JKL Partnership reads
as follows.

Basis

FMV

Cash
Capital asset (nondepreciable)
Total

Jan, capital
Ken, capital
Laura, capital
Total

$24,000
33,000
$57,000

$19,000
19,000
19,000
$57,000

$ 24,000
105,000
$129,000

$ 43,000
43,000
43,000
$129,000

Each partner shares in 1/3 of the partnership capital, income, gain, loss,
deduction and credit. On December 31, 2011, Jan sells her 1/3 partnership
interest to Jennifer for $43,000 cash. Assume the partnership makes a § 754
election for 2010.

a.

What is the
amount of Jennifer’s “step-up†adjustment under § 743(b)?

b.

If the
nondepreciable capital asset is sold the next year for $120,000, determine
the amount of gain that Jennifer will recognize on her tax return because of
the sale.

1235. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS100
Cindy, a 20% general partner in the CDE Partnership, wants to retire and has
approached the other partners about having the partnership buy her out. The
partnership is a cash basis, service oriented partnership in which Cindy is an
active partner. The partnership assets consist primarily of unrealized
receivables and cash. The partnership also has substantial going concern value
(goodwill) which is probably its most valuable asset. The other partners in the
partnership are also active in the business and are not related to Cindy.

Discuss from Cindy’s viewpoint how you would structure the liquidation of her
interest under § 736. Answer as if you are her advocate. Do you think the other
partners will agree with this structure? If not, what structure would they
prefer?

1236. CHAPTER
11—PARTNERSHIPS: DISTRIBUTIONS, TRANSFER OF INTERESTS101
Your client has operated a sole proprietorship for several years, and is now
interested in raising capital for expansion. He is considering forming either a
C corporation or an LLC.

a.

Describe the
treatment of an LLC and discuss any advantages the LLC offers over the C
corporation.

b.

Assume
instead the client has previously operated as a C corporation. Describe the
tax consequences of converting to an LLC.

1237. CHAPTER
12—S CORPORATIONS Question TF #1
The alternative minimum tax may apply to an S corporation.

a.
True
b. False

1238. CHAPTER
12—S CORPORATIONS Question TF #2
The alternative minimum tax does not
apply to an S corporation.

a.
True
b. False

1239. CHAPTER
12—S CORPORATIONS Question TF #3
Liabilities affect owners’ basis differently between a partnership and an S
corporation.

a.
True
b. False

1240. CHAPTER
12—S CORPORATIONS Question TF #4
An S election allows shareholders to realize tax benefits from losses
immediately.

a.
True
b. False

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