Chapter 11 Tax Corp - Important 1

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Chapter 11 Tax Corp - Important 1 - Quiz

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Questions and Answers
  • 1. 
    A cash distribution from a partnership to a partner is generally taxable to the partner. True/False
    • A. 

      True

    • B. 

      False

  • 2. 
    For federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders. True/False
    • A. 

      True

    • B. 

      False

  • 3. 
    In a current (non-liquidating) distribution, loss is never recognized. True/False
    • A. 

      True

    • B. 

      False

  • 4. 
    Anna and Brad are equal partners in the AB LLC. If AB distributes $10,000 of cash to Anna and a capital asset valued at $10,000 to Brad, and if both Anna and Brad continue to be members of the LLC, the distribution is classified as a proportionate current distribution. True/False
    • A. 

      True

    • B. 

      False

  • 5. 
    In a liquidating distribution, a partnership must distribute all of its property to all of its partners. True/False
    • A. 

      True

    • B. 

      False

  • 6. 
    A distribution can be "proportionate" (as defined for purposes of Subchapter K) even if only one partner receives assets from the partnership. True/False
    • A. 

      True

    • B. 

      False

  • 7. 
    Generally, a distribution of property does not result in gain to a partner on either a current or liquidating distribution. A situation where a gain may arise, however, is when a partner contributed appreciated property to the partnership and that property is distributed back to the contributing partner within seven years of the contribution. True/False
    • A. 

      True

    • B. 

      False

  • 8. 
    Loss cannot be recognized on a distribution from a partnership unless cash, unrealized receivables, and/or § 1231 assets are the only items distributed. True/False
    • A. 

      True

    • B. 

      False

  • 9. 
    Generally, no gain is recognized on a proportionate liquidating or current (non-liquidating) distribution of non-cash property even if the FMV of property distributed exceeds the partner's basis in the partnership interest. True/False
    • A. 

      True

    • B. 

      False

  • 10. 
    In a proportionate current (non-liquidating) distribution of cash and a capital asset, the partner recognized gain to the extent the amount of cash plus the FMV of property distributed exceeds the partner's basis in the partnership interest. True/False
    • A. 

      True

    • B. 

      False

  • 11. 
    In a proportionate current (nonliquidating) distribution, cash is deemed to be distributed first, followed by capital, and § 1231 assets, and last, unrealized receivables and inventory. True/False
    • A. 

      True

    • B. 

      False

  • 12. 
    A gain will only arise on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash. True/False
    • A. 

      True

    • B. 

      False

  • 13. 
    The ELF partnership distributed $20,000 cash to Emma in a proportaionate, current (nonliquidating) distribution. Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain. True/False
    • A. 

      True

    • B. 

      False

  • 14. 
    Scott owns 30% interest in the capital and profits of the SOS Partnership. Immediately before he receives a proportionate current (nonliquidating) distribution from SOS, the basis of his partnership interest is $40,000. The distribution consists of $30,000 in cash and land with a fair market value of $80,000. SOS's adjusted basis in the land immediately before the distribution is $50,000. As a result of the distribution, Scott recognized no gain or loss and his basis in the land is $10,000. True/False
    • A. 

      True

    • B. 

      False

  • 15. 
    Randi owns a 40% interest in the capital and profits of the RAY Partnership. Immediately before she receives a proportionate current (nonliquidating) distribution from RAY, the basis for her partnership interest is $60,000. The distribution consists of $45,000 in cash and land with a fair market value of $72,000. RAY's adjusted basis in the land immediately before the distribution is $36,000. As a result of the distribution, Randi recognizes a gain of $57,000. True/False
    • A. 

      True

    • B. 

      False

  • 16. 
    Lori, a partner in the JKL partnership, received a proportionate current (nonliquidating) distribution of $10,000 cash, unrealized receivables with a basis of $0 and a fair market value of $15,000, and land with a basis of $6,000 and a fair market value of $10,000. Her basis in the partnership interest immediately before the distribution was $14,000. She will recognize $0 gain on the distribution, and her basis in the receivables and land will be $0 and $4,000 respectively. True/False
    • A. 

      True

    • B. 

      False

  • 17. 
    Matt, a partner in the MB Parntership, receives a proportionate, current (nonliquidating) distribution of property having a fair market value of $16,000 and a partnership basis of $23,000. Matt's basis in the partnership is $10,000 before the distribution. In this situation, Matt will recognize no gain or loss. He will take a $10,000 basis in the property, and his basis in the partnership interest is reduced to zero. True/False
    • A. 

      True

    • B. 

      False

  • 18. 
    Tim and Darby are equal partners in the TD Parntership. Partnership income for the year is $60,000. Tim needs cash in order to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion If the partners agree, it is acceptable for TD to distribute $8,00 to Tim, and no cash or other property to Darby. True/False
    • A. 

      True

    • B. 

      False

  • 19. 
    Marcie is a 40% member of the M&A LLC. Her basis is $10,000 immediately before the LLC distributes to her $30,000 of cash and land (basis to the LLC of $20,000 and fair market value of $25,000). As a result of the proportionate, current (nonliquidating) distribution, Marcie recognizes a gain of $20,000 and her basis in the land is $0. True/False
    • A. 

      True

    • B. 

      False

  • 20. 
    The BAM Partnership distributed the following assets to partners Barbie in a proportionate nonliquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $25,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $15,000 each to the two land parcels, and her basis in her partnership interest will be reduced to $0. True/False
    • A. 

      True

    • B. 

      False

  • 21. 
    Carl's basis in his LLC interest is $10,000. In a current (nonliquidating) distribution. Carl receives land (basis = $10,000; FMV = $12,000); and invventory (basis = $6,000; FMV = $8,000). Carl takes a $10,000 basis in the land and a $0 basis in the inventory, and has a $0 basis in the LLC interest. True/False
    • A. 

      True

    • B. 

      False

  • 22. 
    In a liquidating distribution that liquidates the partnership, each partner recognizes gain or loss equal to the difference between the value of assets received less the partner's basis in the partnership interest. True/False
    • A. 

      True

    • B. 

      False

  • 23. 
    In a proportionate liquidating distribution, RST Parntership distributes to partner Riley cash of $30,000, accounts receivable (basis of $0, FMV of $40,000), and land (basis of $65,000, FMV of $50,000). Riley's basis was $40,000 before the distribution. On the liquidation, Riley recognizes a gain of $0, and her basis is $10,000 in the land and $0 in the accounts receivable. True/False
    • A. 

      True

    • B. 

      False

  • 24. 
    In a proportionate liquidating distribution, WYX Partnership distributes to partner William cash of $40,000, cash basis accounts receivable (basis of $0, FMV of $10,000), and land (basis of $30,000, FMV of $50,000). William's basis was $80,000 before the distribution. On the liquidation, William recognizes a $20,000 gain, and he takes a basis of $10,000 in the accounts receivable, and $50,000 in the land. True/False
    • A. 

      True

    • B. 

      False

  • 25. 
    Zach's partnership interest basis is $100,000. Zacch recevies a proportionate, liquidating distribution from a liquidating partnership of $50,000 cash and inentory having a bsis of $20,000 to the partnership and a FMV of $30,000. Zach assigns a basis of $20,000 to the inventory and recignizes a $30,000 loss. True/False
    • A. 

      True

    • B. 

      False

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