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Tax 3 - Page 1 of 8 True or False 1 The"inside basis is...

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Page 1 of 8 True or False 1. The “inside basis” is defined as a partner’s basis in the partnership interest. ________ 2. Section 721 provides that no gain or loss is recognized on contribution of property to a partnership in exchange for an interest in the partnership. A disguised sale is an exception to nonrecognition of gain or loss under § 721. ________ 3. Morgan and Kristen formed an equal partnership on August 1 of the current year. Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000. Kristen contributed equipment with a basis of $42,000 and a value of $100,000. Kristen’s tax basis in her interest is $42,000; Morgan’s tax basis is $78,000. ________ 4. Tim and Tom formed the equal T&T Partnership during the current year, with Tim contributing $200,000 in cash and Tom contributing land (basis of $100,000, fair market value of $140,000) and inventory (basis of $40,000, fair market value of $60,000). Tom recognizes a $60,000 gain on the contribution and his basis in his partnership interest is $200,000. ________ 5. Julie owns property that is treated as a capital asset in her hands. She contributed a parcel of land (basis $60,000; fair market value $58,000) to a real estate partnership, which will hold it as inventory. After three years, the partnership sells the land for $56,000. The partnership will recognize a $4,000 ordinary loss on sale of the property. ________ 6. For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders. ________ 7. In a liquidating distribution, a partnership must distribute all of its property to all of its partners. ________ 8. A distribution can be “proportionate” even if only one partner receives assets from the partnership. ________ 9. For income tax purposes, proportionate and disproportionate distributions from a partnership are treated similarly. ________ 10. Generally, gain is recognized on a proportionate current or liquidating distribution only if the cash distributed exceeds the partner’s basis in the partnership interest. ________ Multiple Choice 11. At the beginning of the year, Elsie’s basis in the E&G Partnership interest is $60,000. She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $30,000), and Page 1 of 8
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Page 2 of 8 inventory (basis of $10,000, fair market value of $20,000). After the distribution, Elsie’s bases in the accounts receivable, inventory, and partnership interest are: a. $0; $10,000; and $40,000. b. $0; $20,000; and $30,000. c. $30,000; $10,000; and $10,000. d. $30,000; $20,000; and $0. e. None of the above.
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