Tax 3 - 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

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

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Page 1 of 8 True or False1. 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 apartnership in exchange for an interest in the partnership. A disguised sale is an exceptionto nonrecognition of gain or loss under § 721. ________3. Morgan and Kristen formed an equal partnership on August 1 of the current year. Morgancontributed $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 Timcontributing $200,000 in cash and Tom contributing land (basis of $100,000, fair marketvalue of $140,000) and inventory (basis of $40,000, fair market value of $60,000). Tomrecognizes 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. Thepartnership 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 treatedthe 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 itspartners. ________8. A distribution can be “proportionate” even if only one partner receives assets from thepartnership. ________9. For income tax purposes, proportionate and disproportionate distributions from apartnership are treated similarly. ________10. Generally, gain is recognized on a proportionate current or liquidating distribution only ifthe 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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