Chapter 21 Dispositions of Partnership Interests and Partnership Distributions

1.
[LO 1] Joey is a 25% owner of
Loopy LLC. He no longer wants to be involved in the business. What options does
Joey have to exit the busines?

2.
[LO 1] Compare and contrast the
aggregate and entity approaches for a sale of a partnership interest.

3.
[LO 1] What restrictions might
prevent a partner from selling his partnership interest to a third party?

4.
[LO 1] Explain how a partner’s debt
relief affects his amount realized in a sale of partnership interest.

5.
[LO 1] Under what circumstances will the gain
or loss on the sale of a partnership interest be characterized as ordinary
rather than capital?

6.
[LO 1] What are “hot assets”
and why are they important in the sale of a partnership interest?

7.
[LO 1] For an accrual-method partnership, are
accounts receivable considered unrealized receivables? Explain.

8.
[LO 1] Can a partnership have
unrealized receivables if it has no accounts receivable?

9.
[LO 1] How do hot assets affect
the character of gain or loss on the sale of a partnership interest?

10.
[LO 1] Under what circumstances can a partner
recognize both gain and loss on the sale of a partnership interest?

11.
[LO 1] Absent any special elections, what
effect does a sale of partnership interest have on the partnership?

12.
[LO 1] {Research} Generally, a selling
partner’s capital account carries over to the purchaser of the partnership
interest. Under what circumstances will this not be the case?

13.
[LO 2] What distinguishes operating from liquidating
distributions?

14.
[LO 3] Under what circumstances will a partner
recognize a gain from an operating distribution?

15.
[LO 3] Under what circumstances will a partner
recognize a loss from an operating distribution?

16.
[LO 3] In general, what effect does an operating
distribution have on the partnership?

17.
[LO 3] If a partner’s outside
basis is less than the partnership’s inside basis in distributed assets, how
does the partner determine his basis of the distributed assets in an operating
distribution?

18.
[LO 4] Under what conditions will a partner
recognize gain in a liquidating distribution?

19.
[LO 4] Under what conditions
will a partner recognize loss in a liquidating distribution?

20.
[LO 4] Describe how a partner
determines his basis in distributed assets in cases in which a partnership
distributes only money, inventory, and/or unrealized receivables in a
liquidating distribution.

21.
[LO 4] How does a partner determine his basis in
distributed assets when the partnership distributes other property in addition
to money and hot assets?

22.
[LO 5] {Planning} SBT
partnership distributes $5,000 cash and a parcel of land with a fair market
value of $40,000 and a $25,000 basis to the partnership to Sam (30% partner). What
factors must Sam and SBT consider in determining the tax treatment of this
distribution?

23.
[LO 5] Discuss the underlying concern to tax
policy makers in distributions in which a partner receives more or less than
his share of the partnership hot assets.

24.
[LO 5] In general, how do the disproportionate
distribution rules ensure that partners recognize their share of partnership
ordinary income?

25.
[LO 6] {Planning} Why would a
new partner who pays more for a partnership interest than the selling partner’s
outside basis want the partnership to elect a special basis adjustment?

26.
[LO 6] List two common
situations that will cause a partner’s inside and outside basis to differ.

27.
[LO 6] Explain why a
partnership might not want to make a §754 election to allow special basis
adjustments.

28.
[LO 6] When might a new partner have an upward
basis adjustment following the acquisition of a partnership interest?

29.
[LO 6] Are special basis
adjustments mandatory? If so, when?

Problems

30.
[LO 1] Jerry is a 30% partner
in the JJM Partnership when he sells his entire interest to Lucia for $56,000
cash. At the time of the sale, Jerry’s basis in JJM is $32,000. JJM does not have any debt or hot assets. What
is Jerry’s gain or loss on the sale of his interest?

31.
[LO 1] Joy is a 30% partner in the JOM
Partnership when she sells her entire interest to Hope for $72,000 cash. At the
time of the sale, Joy’s basis in JOM is $44,000 (which includes her $6,000
share of JOM liabilities). JOM does not
have any hot assets. What is Joy’s gain or loss on the sale of her interest?