Chapter 10 Questions.docx - Chapter 10 Questions 1 If...

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South-Western Federal Taxation 2020: Individual Income Taxes
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Chapter 20 / Exercise 21
South-Western Federal Taxation 2020: Individual Income Taxes
Young/Nellen/Hoffman
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Chapter 10 Questions 1. If however cash distributions exceed a partner’s outside basis, the partner is receiving something more than previously taxed income or a return on capital. Section 731(a)(1) thus provides, in a manner comparable to other nonrecognition previously, that the excess of cash from the sale or exchange of a partner’s outside basis is treated as gain, unless section 752 applies. This statutory solution avoids the tax taboo of a negative basis and ensure that the partner’s gain will not escape the tax collection. 2. It is taxed as a partnership capital gain. 3. The operating distribution rules do not apply if cash received from a partnership is not in fact a “distribution”. A discharge of the obligation to repay the loan however, is treated as a distribution of cash. 4. Distribution of property, neither the partnership nor the distributing partners will recognize gain or loss on an operating distribution of property. 5. The steps to outside basis is applied in steps, first any distributed unrealized receivables and inventory items are tentatively assigned a basis equal to the partnership’s basis in each of those assets. The each other distributed property is tentatively assigned a basis equal to the partnership basis in the asset. First to unrealized receivables and inventory items. 6. Property distribution reduces the partner’s outside basis, but not below zero, by the transferred basis in the asset. After the outside basis is reduced by the steps the remaining outside basis is reduced by other assets distributed in the manner described above. 7. This method of allocation is designed to preserve the partnership’s basis for the unrealized receivables and inventory items and thus ensured that the partner will recognize at least the same amount of gain upon the disposition of those assets as the partnership would have recognized had they been sold at the partnership level. This preserves the ordinary income character of this gain. 8. Section 732(d) provides an exception to the forgoing basis rules by permitting certain distribute partners to elect to treat any distributed properties as though the partner had a section 754 election in effect when the partner purchases or inherited his interest.
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South-Western Federal Taxation 2020: Individual Income Taxes
The document you are viewing contains questions related to this textbook.
Chapter 20 / Exercise 21
South-Western Federal Taxation 2020: Individual Income Taxes
Young/Nellen/Hoffman
Expert Verified

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