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Exchange for vincents share of distributed unrealized

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exchange for Vincent’s share of (distributed) unrealized receivables,so the result is ordinary income to Vincent.33.This distribution is proportionate with respect to “hot assets,” sothe receivables do not trigger ordinary income recognition by any ofthe partners. For Tyler and Anita, the cash is distributed first.Because the cash does not exceed their outside basis, no gain isrecognized by either Tyler or Anita. The receivables are distributedsecond and the partners take a carryover basis of $0 in thereceivables.For Vincent, the receivables are deemed distributed first and take acarryover basis. The land is distributed next. Because he is merelyreceiving a return of pre-contribution gain property he contributed,he will not recognize any gain or loss. Note that there is norequirement for cash and capital gain property distributions to beproportionate for each specific property.Page 4 of 14
34.If accounts receivable are distributed disproportionately to thepartners, the non-distributee partners will be required to recognizeordinary income currently, and the distributee partner will be able todefer the ordinary income until such time as the receivables arecollected.Because Vincent contributed the appreciated land less than sevenyears ago, if any of the land is distributed to any of the otherpartners, Vincent will be required to recognize part or all of the$30,000 [$60,000 (fair market value) – $30,000 (basis)] pre-contribution gain. The post contribution gain will be deferred untilthe land is sold. If the land is distributed to Vincent, though, he willnot be required to recognize gain until he later sells the property.The Code does not require the gain to be reported merely because apartner contributes a property and later receives it in a distribution.The cash and marketable security distributions may result in capitalgains to the partners if the distribution exceeds a partner’s outsidebasis. The potential gain from the securities is deferred to the extentit relates to appreciation earned by the partnership.35.a.Landon recognizes a $10,000 capital gain.b.No gain or loss is recognized by Mark. The $30,000 basis inthe partnership interest remaining after the reduction for the$20,000 cash is allocated to the capital asset.c.Neil does not recognize any gain or loss as a result of thedistribution. The inventory has a basis to Neil of $30,000, andthe capital asset is allocated the $30,000 basis of Neil’spartnership interest remaining after the reduction for the cashand the amount allocated to the inventory.d.Oscar recognizes a $30,000 capital loss on the distribution. Hereceived only cash and unrealized receivables in thedistribution, and his basis in the assets received ($10,000 basisin cash + $0 carryover basis in the account receivable) is lessthan his $40,000 basis in the partnership interest before thedistribution.36.a.None. Because the $10,000 cash received did not exceedJerome’s basis in his partnership interest, no gain isrecognized. After reducing Jerome’s basis in his partnership

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Term
Spring
Professor
Shally
Tags
Balance Sheet, basis, partner

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