REG13 Flashcards
In a liquidating distribution what is the basis in property distributed when there is also cash received?
The liquidating partner’s basis in (noncash) property received is any excess of AB in the partnership interest before distribution over any amount of money received.
When is gain recognized on a distribution to a partner?
Only to the extent that money distributed > the partner’s AB. It would be capital gain. The adjusted AB of the property to the partnership will be the amount treated as distributed.
If inventory is sold within 5 years of the distribution, is there a gain recognized?
Yes, the sale of the inventory within 5 years of the distribution is an ordinary gain; therefore, the $1,000 gain (sale price – Original AB).
What are “hot assets” of a partnership?
A sale or exchange of a partnership interest results in capital gain or loss, except that any gain realized attributable to “hot assets” is ordinary income. “Hot assets” include unrealized receivables and inventory.
If both assets and services are contributed for partnership interest, how do you calculate the value of the services?
FMV of services = FMV of the P interest – FMV of assets contributed
Does a partner recognize OI if he sells his partnership interest when there are unrealized receivables?
Yes, OI = unrealized receivables x %
Is the basis of partnership property adjusted as the result of a transfer of a partnership interest when there is an election under Sec. 754 in effect?
Yes, when the Sec. 754 election is in effect, a partnership increases the AB of the partnership property by the excess of the basis to the transferee partner of his or her interest in the partnership over his or her proportionate share of the AB of the partnership property, but the increase belongs only to the purchasing partner.
If a partner contributed land with a FMV of $100,000 and a tax basis of $60,000 in exchange for a 1/3 interest in the partnership and then during its first year of operation, the partnership sold the land to an unrelated third party for $160,000, how is the gain accounted for?
Must first allocate any precontribution gain or loss to the contributing partner, followed by their proportionate share of the gain or loss.
In this case, a built-in $40,000 gain. Upon disposition, the partnership realizes a gain of $100,000. Of this gain, $40,000 is allocated as precontribution gain. The remaining gain of $60,000 is shared equally among the partners per the partnership agreement. One partner has a total gain of $60,000 [$40,000 precontribution gain + ($60,000 remaining gain ÷ 3)] and the other two partners each report a gain of $20,000 ($60,000 remaining gain ÷ 3).
If a question says employed to work for an agreed salary and a promise to give him a % ownership interest if he were still employed at the end of 3 years, how do you calculate the interest?
There is income = to the FMV value of the partnership interest must be recognized by the partner. A partner’s basis in his or her partnership interest received for services rendered is equal to the income recognized. Net worth of partnership interest x %.
Would SL depreciation be a required adjustment to TI in computing current earnings and profits?
Since SL depreciation was used in computing both the corporation’s tax and current E&P, it does not require an adjustment.
When figuring the basis in property distributed between two pieces, what do you do?
Assign basis of property. Figure the difference between partnership basis and AB assigned to properties…allocate this difference. Take FMV of each property - AB of each property…use these difference as a % to allocate the remaining basis that needs to be allocated.
If there is a gain in a distribution over the basis of a retiring partner, when is it recognized?
Gain on a distribution is recognized only to the extent money distributed exceeds the partner’s basis in the interest. This gain is only recognized after all basis has been recovered.
When contributing services to a partnership, what is income to the new partner?
FMV of net assets x Ownership %
Is an interest free loan considered income to a partner?
The $10,000 interest-free loan is not considered income to the partner.
Is there a gain or loss recognized by a partnership if receivables are distributed?
Under Sec. 751(b), when more unrealized receivables are distributed to a partner than his share, there is a gain or loss and it is ordinary. The excess accounts receivable will be ordinary income to the partnership.
