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Partnership Basis of Assets

1. Partner Jordan received a distribution of $80,000 cash from JKL Partnership in complete liquidation of his partnership interest. If Jordan's outside basis immediately before the distribution was $90,000, and if the partnership has made (and not revoked) a 754 election in a prior year, which of the following statements if true. (assume the partnership owns no hot assets)

a. The partnership will step-down the basis of its assets by $10,000
b. The partnership will step up the basis of its assets by $10,000
c. Jordan will recognize $10,000 of ordinary loss on the distribution.
d. Jordan will recognize a $10,000 capital loss on the distribution
c. Both a and d are true

2. The ABC partnership makes a proportionate distribution of its assets to Charles, in complete liquidation of his partnership interest. The distribution consists of $30,000 in cas and capital assets with a basis to the partnership of $20,000 and a fair market value of $28,000. None of the payment is for partnership goodwill. At the time of the distribution, Charles' partnership basis is $42,000 and the partnership has no liabilities and no hot assets. If the partnership makes an optional basis adjustment election on a timely filed return, it recognizes:

a. Capital gain of $16,000 and increases the basis of its remaining assets by $8,000
b. Capital loss of $8,000 and decreases the basis of its remaining assets by $16,000
c. No gain or loss and increases the basis of its remaining assets by $8,000
d. No gain or loss and decreases the basis of its remaining assets by $16,000
e. None of the above.

3. On January 2, 2008 David loans his S corporation $10,000, and by the end of 2008 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2009, the company's operating income is $10,000. The company also makes distributions to David of $11,000, Which statement is true?

4. Quadrant, Inc. is a former C Corporation whose first S corporation year began on January 1, 2009. At that time, Quadrant had two assets: x, with a value of $1,000 and a basis of $400; and Y, with a value of $400 and a basis of $600. The net unrealized built in gain as of January 1, 2009 is $400 (i.e., X's $600 gain less Y's $200 loss) Asset X is sold for $1,200 during 2009, and asset Y is retained. The recognized built in gain in 2009 is:

a. $0
b. $200
c. $400
d. $600
e. None of the above

5. An S Corporation reports $10,000 DPGR and $7,500 of wages, and the S corporation's QPAI is $2,500. Shelly has a 50% interest in the S corporation. All expenses that reduce DPGR are from wages, and all wages paid relate to DPGR. How much QPAI and wages are allocated to Shelly?

a. $1,250 QPAI and $3,750 wages
b.. $2,500 QPAI and $7,500 wages
c. $1,250 QPAI and $1,875 wages
d. $2,500 QPAI and $1,875 wages
e. None of the above

Solution Preview

Running Head: TAXATION

Advanced Taxation

Answer 1
a. The partnership will step-down the basis of its assets by $10,000
Explanation - With the selection of 754 election, this transaction would cause a downward adjustment of the amount of $10000 (90000-80000) in partnership.
Answer 2
c. No gain or loss and increases the basis of its remaining assets by $8,000
Hoffman, ...

Solution Summary

The partnership basis of assets are examined.

$2.19