M4-Partnerships: Part 3

Question 1

In a complete liquidation of a partnership, the partner’s basis in property received is the same as the adjusted basis of his partnership interest reduced for any monies actually received and is generally a nontaxable event. However, if a partner receives only money that exceeds his basis in the partnership, gain or loss is recognized. (true or false)

Answer 1

true

Question 2

Payments made in liquidation of the interest of a retiring partner are considered a distribution by the partnership. Therefore, a retiring partner continues as a partner until his interest has been completely liquidated by partnership distributions. (true or false)

Answer 2

true

Question 3

In a liquidating distribution, the partner’s basis for the distributed property is the same as the adjusted basis of his partnership interest (as the partner is simply exchanging his partnership interest for the distributed assets), reduced by any monies received in the same transaction. (true or false)

Answer 3

true

Question 4

A partner who sells his interest in a partnership has a recognized gain or loss that is measured by the difference between the amount realized for the sale and the adjusted basis of the partnership interest. If there are any partnership liabilities allocated to the interest and transferred to the buyer, they are considered part of the amount realized. Any gain that represents a partner’s share of “hot assets” (unrealized receivables of appreciated inventory) is treated as what?

Answer 4

ordinary income if cash is taken.