Thus because only 30 percent of profits interests have been sold JKLM does not

Thus, because only 30 percent of profits interests have been sold, JKLM does not terminate, even though 50 percent of capital interests have been sold. See §708(b)(1)(B); Reg. §1.708-1(b)(1)(ii). -------------------------------------------------------------------------------------------------

Question 7 . If L sells her partnership interest to N on June 1 of year 1, and K sells her partnership interest to O on February 1 of year 2, JKLM does not terminate on either date because there has not been a sale of at least 50 percent of both partnership capital and profits interests in the same calendar year. A: False. The sales that aggregate at least 50 percent of the partnership's capital and profits interests need not occur in the same calendar or taxable year so long as they occur in the same consecutive twelve-month period. See §708(b)(1)(B); Reg. §1.708-1(b)(1)(ii). ------------------------------------------------------------------------------------------------- Question 8 . Which of the following statements is TRUE? The sale by L terminates JKLM. The sale by M terminates JKLM because combined with J's and L's sales 70 percent of interests in partnership profits and 50 percent of interests in partnership capital have been sold. JKLM would terminate if M, rather than J, sold his partnership interest on February 1 of year 2. JKLM does not terminate. A: (D) L's and J's sales can be combined because they occurred within the same twelve consecutive month period. However, combined they equal only 45 percent of the interests in partnership profits and 20 percent of the interests in partnership capital. J's and M's sales can be combined because they occurred within the same twelve consecutive month period. However, when combined, they equal only 45 percent of the interests in partnership profits and 40 percent of the interests in partnership capital. All three sales cannot be combined because they do not occur in the same twelve consecutive month period. See §708(b)(1)(B); Reg. §1.708-1(b)(1)(ii). ------------------------------------------------------------------------------------------------- Section: Partnership Terminations: Consequences P, Q, and R have been partners in PQR Partnership since its formation many years ago. P owns a 50 percent interest in the capital and profits, and Q and R each own a 25 percent interest. On January 1 of year 1, the balance sheet of PQR is the following: AB: FMV AB: FMV Cash: $100,000 $100,00 Equity: Unrealized receivables: -0- 120,000 P $410,000 $560,000 Land: 120,000 180,000 Q 205,000 280,000 Building: 600,000 720,000 R 205,000 280,000

On January 1 of year 1, P sells his partnership interest to T for $560,000. Question 1 . PQR terminates for federal income tax purposes on January 1 of year 1. A: False. Reread §708(b)(1)(B); Reg. §1.708-1(b)(1)(ii). ------------------------------------------------------------------------------------------------- On January 1 of year 1, P sells his partnership interest to T for $560,000. Question 2 . Only P recognizes gain and ordinary income as a consequence of the transaction. A: True. Question 2T . Which of the following statements does NOT support the conclusion? The termination is treated as a contribution of the partnership's assets by the PQR partnership to a new TQR partnership. Because PQR does not recognize gain by contributing its assets to a new TQR partnership, there are no distributive shares of gain to report.