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Multiple Choice Quiz
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1
Franklin is a 30% partner in the FRW Partnership when he sells his entire interest to Mary for $82,000. At the time of the sale, Franklin's basis in FRW is $87,000. FRW does not have any debt or hot assets. Franklin will recognize a gain of $10,000 on the sale of his partnership interest.
A)True
B)False
2
The purpose of hot asset rules is to ensure that selling partners recognize all gain or loss on the sale of their partnership interests as ordinary.
A)True
B)False
3
Amanda is a 30% partner in the ACW Partnership with an outside basis of $22,000. ACW distributes land with a basis of $12,000 and fair value of $18,000 to Amanda in complete liquidation of her interest. Amanda recognizes a capital loss of $4,000 on the distribution.
A)True
B)False
4
Jerilyn is a 30% partner in the APJ Partnership when she sells her entire interest to Melly for $92,000 cash. At the time of the sale, Jerilyn's basis in APJ is $75,000. APJ does not have any debt or hot assets. What is Jerilyn's gain or loss on the sale of his interest?
A)$17,000 capital gain.
B)$17,000 ordinary income.
C)$10,000 capital gain and $7,000 ordinary income.
D)Gain or loss cannot be determined.
5
Which of the following assets would be classified as hot assets?
A)Land held for investment
B)Inventory
C)Cash
D)Stock held for investment.
6
The PLM Partnership balance sheet includes the following assets on December 31 of the current year:
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Pamela, a 1/3 partner, has an adjusted basis of $100,000 for her partnership interest. If Pamela sells her entire partnership interest to Emma for $135,000 cash, how much capital gain and ordinary income must Pamela recognize from the sale?
A)$35,000 ordinary income
B)$35,000 capital gain
C)$10,000 ordinary income; $25,000 capital gain
D)$10,000 capital gain; $25,000 ordinary income
7
In which type of distribution may a partner never recognize a loss on the distribution?
A)Operating distributions.
B)Liquidating distributions.
C)Neither operating nor liquidating distributions.
D)Both operating and liquidating distributions.
8
Martha is a 50% partner in the AM Partnership and has an outside basis of $112,000 at the end of the year prior to any distributions. On December 31, Martha receives a proportionate operating distribution of $40,000 cash. What is the amount and character of Martha's recognized gain or loss and what is her basis in her partnership interest?
A)$0 gain, $72,000 basis
B)$0 gain, $112,000 basis
C)$40,000 ordinary income, $112,000 basis
D)$40,000 ordinary income, $72,000 basis
9
Rory is a 50% partner in the ALR Partnership and has an outside basis of $112,000 at the end of the year prior to any distributions. On December 31, Rory receives a proportionate operating distribution of $12,000 cash and a parcel of land with a $28,000 fair value and a $16,000 basis to ALR. What is Rory's basis in the distributed property?
A)Cash $12,000, land $0
B)Cash $12,000, land $16,000
C)Cash $12,000, land $28,000
D)Cash $12,000, land $44,000
10
Mark is a 30% partner in the DMD Partnership. On January 1, DMD distributes $52,000 cash to Mark in complete liquidation of his interest. DMD has only capital assets and no liabilities at the date of the distribution. Mark's basis in DMD is $74,000. What is the amount and character of Randolph's gain or loss on the distribution?
A)$0 gain or loss.
B)$22,000 capital gain.
C)$22,000 ordinary income.
D)$22,000 capital loss.
11
Whitney is a 25% partner in the WRW Partnership. On January 1, WRW distributes $80,000 cash to Whitney. WRW has no hot assets or liabilities at the date of the distribution. Whitney's basis in WRW is $56,000. What is the amount and character of Whitney's gain or loss from the distribution?
A)$0
B)$24,000 ordinary income
C)$24,000 capital loss
D)$24,000 capital gain
12
Isabella is a 30% partner in the ITV Partnership. On January 1, ITV distributes $32,000 cash, inventory with a $32,000 fair value (inside basis $16,000), and accounts receivable with a fair value of $16,000 (inside basis of $24,000). ITV has no liabilities at the date of the distribution. Isabella's basis in ITV is $40,000. What is the amount and character of Isabella's gain or loss from the liquidating distribution?
A)$0
B)$32,000 ordinary income
C)$32,000 capital gain
D)$40,000 capital gain
13
Mario is a 40% partner in the MPC Partnership. On January 1, MPC distributes $32,000 cash and land with a $32,000 fair value (inside basis $16,000). MPC has no liabilities at the date of the distribution. Mario's basis in MPC is $40,000. What is the amount and character of Mario's gain or loss from the liquidating distribution?
A)$0
B)$8,000 capital gain
C)$24,000 ordinary income
D)$24,000 capital gain
14
Lucas is a 25% partner in the LCS Partnership. On January 1, LCS distributes $40,000 cash and land with a $32,000 fair value (inside basis $16,000). LCS has no liabilities at the date of the distribution. Lucas' basis in LCS is $32,000. What is the amount and character of Lucas' gain or loss on the liquidating distribution?
A)$0
B)$8,000 capital gain
C)$24,000 capital gain
D)$40,000 capital gain
15
Which of the following is true concerning special basis adjustments?
A)Special basis adjustments are intended to eliminate discrepancies between inside and outside bases.
B)Special basis adjustments are an annual election made by the partner.
C)A special basis adjustment is mandatory when a new investor purchases a partnership interest.
D)Special basis adjustments occur from distributions in which a partner does not recognize a gain or loss.





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