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Unformatted text preview: 11-1Chapter 11 Solutions Partnership: Distributions, Transfers & Terminations (2011) updated: October 20, 2010 20. a. The partnership recognizes no gain or loss as a result of the distribution. b. Since this is a proportionate nonliquidating distribution, Hayden would only recognize gain if the cash received exceeded his outside basis. He would only recognize loss under limited conditions, and only if his interest in the partnership terminated. Therefore, he has no recognized gain or loss. c. Hayden takes a basis in the inventory equal to the partnership’s basis in the inventory, or $60,000. His $420,000 basis in the partnership is reduced first by the $100,000 cash distribution, then by the $60,000 inventory distribution. He takes a basis in the land equal to the partnership’s basis in the land, or $75,000. The land distribution reduces his basis in the partnership interest to $185,000. Example 9 21. a. A partnership recognizes no gain or loss on a distribution that does not alter the partner’s proportionate ownership of hot assets. b. Laura recognizes no gain or loss on the distribution. Gain is recognized on a nonliquidating distribution if the amount of cash or certain marketable securities received exceeds the partner’s outside basis immediately before the distribution. c. The cash is deemed distributed first and reduces Laura’s outside basis to $20,000. The account receivable is distributed next, and takes a substituted and carryover basis of $0. The land is distributed last and takes a substituted basis of $20,000. The receivable distribution does not change Laura’s outside basis. The value she received was $220,000 (compared to her basis of $100,000), but she recognizes no gain or loss because of the basis allocation and ordering rules. Examples 8 and 9 22. a. Kim recognizes a $15,000 gain on the distribution. Her outside basis for her partnership interest is reduced to $0. The partnership does not recognize any gain or loss on the transaction. b. The $20,000 cash is deemed distributed first and reduces Kandy’s outside basis to $40,000. The land takes a $30,000 carryover basis to Kandy, and her outside basis for her partnership interest is reduced to $10,000. The partnership recognizes no gain or loss on the transaction. c. Kandy recognizes no gain or loss on the cash distribution, the land takes a substituted basis to Kandy of $12,000, and her outside basis for the partnership interest is reduced to $0. d. The cash is deemed distributed first and results in a $10,000 taxable gain to Kerri because it exceeds her basis in the interest before the distribution. The inventory takes a $0 substituted basis. Kerri’s outside basis is reduced to $0 as a result of the cash distribution. The inventory distribution does not affect her basis. The partnership recognizes no gain or loss on the distribution....
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This note was uploaded on 09/09/2011 for the course TAX 5015 taught by Professor Kelliher,c during the Spring '08 term at University of Central Florida.
- Spring '08