Law question data bank
1223S,88
Match the following independent
descriptions as âhotâ (i.e., ordinary income) or nonhot assets with the
statements below.Inventory with a basis of $10,000 and a fair market value
of $15,000.Marketable securities (not held as inventory).Cash basis accounts
receivable.Installment receivables for sale of a capital asset.Land held by the
partnership for the purpose of subdividing and selling lots.Inventory with a
basis of $10,000 and a fair market value of $10,500.Hot assets for purposes of
distributions, liquidation of a partnership interest under § 736, and sale of a
partnership interest. Not a hot asset. Hot assets for purposes of
distributions, liquidation of a partnership interest under § 736, and sale of a
partnership interest. Not a hot asset. May be a hot asset for some but not all
the purposes stated in (a). May be a hot asset for some but not all the
purposes stated in (a).
[a] 1. Inventory with a basis of
$10,000 and a fair market value of $15,000.
[b] 2. Marketable securities
(not held as inventory).
[c] 3. Cash basis accounts
receivable.
[d] 4. Installment receivables
for sale of a capital asset.
[e] 5. Land held by the
partnership for the purpose of subdividing and selling lots.
[f] 6. Inventory with a basis
of $10,000 and a fair market value of $10,500.
a. Hot assets for purposes of
distributions, liquidation of a partnership interest under § 736, and sale of a
partnership interest.
b. Not a hot asset.
c. Hot assets for purposes of
distributions, liquidation of a partnership interest under § 736, and sale of a
partnership interest.
d. Not a hot asset.
e. May be a hot asset for some
but not all the purposes stated in (a).
f. May be a hot asset for some
but not all the purposes stated in (a).
1224S,89
Chelsea owns a 25% capital and profits interest in the calendar-year CJDV
Partnership. Her adjusted basis for her partnership interest on July 1 of the
current year is $170,000. On that date, she receives a proportionate
nonliquidating distribution of the following assets:
Partnershipâs
Basis in Asset
Assetâs
Fair Market Value
Cash
$ 90,000
$ 90,000
Inventory
110,000
140,000
Land (held
for investment)
100,000
160,000
a.
Calculate
Chelseaâs recognized gain or loss on the distribution, if any.
b.
Calculate
Chelseaâs basis in the inventory received.
c.
Calculate
Chelseaâs basis in land received. The land is a capital asset.
d.
Calculate
Chelseaâs basis for her partnership interest after the distribution.
1225S,90
Melissa is a partner in a continuing partnership. At the end of the current
year, the partnership makes a proportionate, nonliquidating distribution to
Melissa of $50,000 cash, inventory (basis of $22,000, fair market value of
$20,000), and land (basis of $30,000, fair market value of $60,000). Melissaâs
basis in the partnership interest was $90,000 before the distribution. What is
Melissaâs basis in the inventory, land, and partnership interest following the
distribution?
1226S,91
In a proportionate liquidating distribution in which the partnership is
liquidated, Greg received cash of $20,000, inventory (basis of $2,000, fair
market value of $3,000), and a capital asset (basis and fair market value of
$4,000). Immediately before the distribution, Gregâs basis in the partnership
interest was $30,000.
a.
How much
gain or loss will Greg recognize on the distribution?
b.
What is
Gregâs basis in the inventory and the capital asset?
1227S,92
The JIH Partnership distributed the following assets to partner James in a
proportionate liquidating distribution in which the partnership is liquidated:
$25,000 cash, land parcel A (basis of $5,000, fair market value of $30,000),
and land parcel B (basis of $5,000, fair market value of $15,000). Jamesâs
basis in his partnership interest was $85,000 immediately before the
distribution.
a.
How much gain
or loss will James recognize on the distribution?
b.
What basis
will James allocate to parcel A and parcel B?
1228S,93
Josh has a 25% capital and profits interest in the calendar-year GDJ
Partnership. His adjusted basis for his partnership interest on October 15 of
the current year is $300,000. On that date, the partnership liquidates and makes
a proportionate distribution of the following assets to Josh.
Partnershipâs
Basis in Asset
Assetâs
Fair Market Value
Cash
Inventory
$ 70,000
120,000
$ 70,000
150,000
a.
Calculate
Joshâs recognized gain or loss on the liquidating distribution, if any.
b.
How would
your answer to a. change if the partnership also distributed a small parcel
of land it had held for investment to Josh? Assume the land has a $5,000
adjusted basis (FMV is $8,000) to the partnership.
1229S,94
The December 31, 2011, balance sheet of the BCD General Partnership reads as
follows.
Basis
FMV
Cash
Receivables
Capital assets
Total
Ben, capital
Christina, capital
Danielle, capital
Total
$210,000
â0â
42,000
$252,000
$ 84,000
84,000
84,000
$252,000
$210,000
120,000
69,000
$399,000
$133,000
133,000
133,000
$399,000
Each partner shares in 1/3 of the partnership capital, income, gain, loss,
deduction and credit. Capital is not a material income-producing factor to the
partnership. On December 31, 2011, general partner Christina receives a
distribution of $140,000 cash in liquidation of her partnership interest under
§ 736. Nothing is stated in the partnership agreement about goodwill.
Christinaâs outside basis for the partnership interest immediately before the
distribution is $84,000.
How much is Christinaâs recognized gain from the distribution and what is the
character of the gain?
1230S,95
The December 31, 2011, balance sheet of the DBW General Partnership is as
follows:
Basis
FMV
Cash
Receivables
Capital assets
Total
Dana, capital
Brooke, capital
Whitney, capital
Total
$240,000
â0â
90,000
$330,000
$110,000
110,000
110,000
$330,000
$240,000
75,000
150,000
$465,000
$155,000
155,000
155,000
$465,000
The partners share equally in partnership capital, income, gain, loss,
deduction, and credit and capital is not a material income-producing factor. On
December 31, 2011, general partner Dana receives a distribution of $155,000
cash in liquidation of her interest under § 736. Danaâs outside basis for the
partnership interest immediately before the distribution is $110,000. What is
Danaâs gain or loss on the distribution and its character?
1231S,96
Susan is a one-fourth limited partner in the SJ Partnership in which capital is
not a material income-producing factor. Partnership assets consist of land
(fair market value of $100,000, basis of $80,000), accounts receivable (fair
market value of $100,000, basis of $0) and cash of $200,000. SJ distributes
$100,000 of the cash to Susan in liquidation of her interest. Susanâs basis in
the partnership interest was $70,000 immediately before the distribution. How
much gain or loss does Susan recognize and what is its character? How much can
the partnership deduct?
1232S,97
On August 31 of the current tax year, the balance sheet of the RBD General
Partnership is as follows:
Basis
FMV
Cash
Receivables
Capital assets
Total
Nonrecourse debt
Rachel, capital
Barry, capital
Dale, capital
Total
$150,000
â0â
600,000
$750,000
$150,000
200,000
200,000
200,000
$750,000
$150,000
90,000
660,000
$900,000
$150,000
250,000
250,000
250,000
$900,000
On that date, Rachel sells her one-third partnership interest to Lisa for
$300,000, including cash and relief of Rachelâs share of the nonrecourse debt.
The nonrecourse debt is shared equally among the partners. Rachelâs outside
basis for her partnership interest is $250,000. How much capital gain and/or
ordinary income will Rachel recognize on the sale?
1233S,98
Hannah sells her 25% interest in the HIJK Partnership to Alyssa for $120,000
cash. At the end of the year prior to the sale, Hannahâs basis in HIJK was
$70,000. The partnership allocates $15,000 of income to Hannah for the portion
of the year she was a partner. On the date of the sale, the partnership assets
and the agreed fair market values were as follows.
Basis
FMV
Cash
Accounts Receivable
Land
Total
$100,000
â0â
240,000
$340,000
$100,000
80,000
220,000
$400,000
Determine the amount and character of any gain that Hannah recognizes on the
sale.
1234S,99
The December 31, 2011, balance sheet of the calendar-year JKL Partnership reads
as follows.
Basis
FMV
Cash
Capital asset (nondepreciable)
Total
Jan, capital
Ken, capital
Laura, capital
Total
$24,000
33,000
$57,000
$19,000
19,000
19,000
$57,000
$ 24,000
105,000
$129,000
$ 43,000
43,000
43,000
$129,000
Each partner shares in 1/3 of the partnership capital, income, gain, loss,
deduction and credit. On December 31, 2011, Jan sells her 1/3 partnership
interest to Jennifer for $43,000 cash. Assume the partnership makes a § 754
election for 2010.
a.
What is the
amount of Jenniferâs âstep-upâ adjustment under § 743(b)?
b.
If the
nondepreciable capital asset is sold the next year for $120,000, determine
the amount of gain that Jennifer will recognize on her tax return because of
the sale.
1235S100
Cindy, a 20% general partner in the CDE Partnership, wants to retire and has
approached the other partners about having the partnership buy her out. The
partnership is a cash basis, service oriented partnership in which Cindy is an
active partner. The partnership assets consist primarily of unrealized
receivables and cash. The partnership also has substantial going concern value
(goodwill) which is probably its most valuable asset. The other partners in the
partnership are also active in the business and are not related to Cindy.
Discuss from Cindyâs viewpoint how you would structure the liquidation of her
interest under § 736. Answer as if you are her advocate. Do you think the other
partners will agree with this structure? If not, what structure would they
prefer?
1236S101
Your client has operated a sole proprietorship for several years, and is now
interested in raising capital for expansion. He is considering forming either a
C corporation or an LLC.
a.
Describe the
treatment of an LLC and discuss any advantages the LLC offers over the C
corporation.
b.
Assume
instead the client has previously operated as a C corporation. Describe the
tax consequences of converting to an LLC.
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