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$3,000c. $0d.$9,000ExplanationChoice "a" is correct. Hart's basis for the land is $6,000.Rule:The basis of property received in a distribution, other than in liquidation of a partner's interest, will ordinarily be the same as the basis in the hands of the partnership immediately priorto distribution. However, in no case may the basis of property in the hands of the partner exceed the basis of his partnership interest reduced by the amount of money distributed to him in the same transaction.Partnership interest adjusted prior to distribution$ 30,000Amount of cash distributed(24,000)Remaining basis after cash distribution6,000Distribution of land with basis of $9,000(6,000) Remaining partnership interest$ 0The partnership interest may not be reduced below zero. Therefore, the land has a basis of $6,000in the hands of the partner. Eng contributed the following assets to a partnership in exchange for a 50% interest in the partnership's capital and profits:
Cash$50,000Equipment: Fair market value35,000Carrying amount (adjusted basis)25,000The basis for Eng's interest in the partnership is:a. $75,000b.$42,500c. $85,000d.$37,500ExplanationChoice "a" is correct. The basis for Eng's interest in the partnership is $75,000 computed as follows:Cash$ 50,000Adjusted basis of eqpt.25,000Total partnership interest basis$ 75,000Rule:In general, a partner's basis in his/her partnership interest will be the amount of cash contributed plus the adjusted basis of any property contributed in exchange for the interest.Choices "d", "b", and "c" are incorrect, per the above rule. Under the Internal Revenue Code sections pertaining to partnerships, guaranteed payments are payments to partners for:a.Sales of partners' assets to the partnership at guaranteed amounts regardless of market values.b.Timely payments of periodic interest on bona fide loans that are not treated as partners' capital.
c. Services or the use of capital without regard to partnership income.d.Payments of principal on secured notes honored at maturity.ExplanationChoice "c" is correct. Under the Internal Revenue Code, guaranteed payments are payments to partners for services rendered or the use of capital without regard to partnership income.Choices "d", "b", and "a" are incorrect, per the above definition of a guaranteed payment.The basis to a partner of property distributed "in kind" in complete liquidation of the partner's interest is the:a.Adjusted basis of the partner's interest increased by any cash distributed to the partner in the same transaction.b.Fair market value of the property.c. Adjusted basis of the property to the partnership.d.Adjusted basis of the partner's interest reduced by any cash distributed to the partner in thesame transaction.ExplanationChoice "d" is correct. Adjusted basis of the partner's interest reduced by any cash distributed to the partner in the same transaction.