554 MODULE 35 TAXES: PARTNERSHIPS

50. (c) The requirement is to determine under which was $30,000, Roe will report no gain or loss on the sale of
circumstances a partnership, other than an electing large his partnership interest.
partnership, is considered terminated for income tax pur-
K. Pro Rata Distributions from Partnership
poses. A partnership will be terminated when (1) there are
no longer at least two partners, (2) no part of any business, 57. (c) The requirement is to determine Frazier's recog-
financial operation, or venture of the partnership continues nized gain resulting from the cash received in liquidation of
to be carried on by any of its partners in a partnership, or (3) his partnership interest. A distributee partner will recognize
within a twelve-month period there isa sale Or exchange of any realized gain or loss resulting from the complete liqui-
50% or more of the total interest in partnership capital and dation of the partner's interest if only cash is received.
profits. Since Frazier's basis for his partnership interest was $1,200
51. (a) The requirement is to determine the date on and he received $1,500 cash, Frazier must recognize a $300
which the partnership was terminated. A partnership gener- capital gain.
ally does not terminate for tax purposes upon the death of a 58. (c) The requirement is to determine the basis for
partner, since the deceased partner's estate or successor in land acquired in a nonliquidating partnership distribution.
interest continues to share in partnership profits and losses. Generally, no gain or loss is recognized on the distribution
However, the Beck and Crocker Partnership was terminated of partnership property to a partner. As a result, the part-
when Beck's entire partnership interest was liquidated on ner's basis for distributed property is generally the same as
April 30, 2008, since there no longer were at least two part- the partnership's former basis for the property (a transferred
ners and the business ceased to exist as a partnership. basis). However, since the distribution cannot reduce the
J. Sale of a Partnership Interest basis for the partner's partnership interest below zero, the
distributed property's basis to the partner is limited to the
52. (d) The requirement is to determine the amount and partner's basis for the partnership interest before the distri-
character of gain or loss recognized on the sale of Clark' s bution. In this case, Curry's basis for the land will be lim-
partnership interest. A partnership interest is a capital asset ited to the $5,000 basis for his partnership interest before the
and a sale generally results in capital gain or loss, except that distribution. '
ordinary income must be reported to the extent of the selling
partner's share of unrealized receivables and appreciated 59. (b) The requirement is to determine Hart's basis for
inventory. Here, Clark realized $55,000 from the sale of his the land received in a nonliquidating partnership distribu-
partnership interest ($30,000 cash + relief from his $25,000 tion. If both cash and noncash property are received in a
share of partnership liabilities). Since the partnership had no single distribution, the basis for the partner's partnership
unrealized receivables or appreciated inventory and the basis interest is first reduced by the cash, before being reduced by
of Clark's interest was $40,000, Clark realized a capital gain noncash property. Although a partner's basis for noncash
of $55,000 - $40,000 = $15,000 from the sale. property is generally the same as the partnership's basis for
the property ($7,000 in this case), the partner's basis for
53. (a) The requirement is to determine the total amount distributed property will be limited to the partner's basis for
realized by Carr on the sale of his partnership interest. The die partnership interest reduced by any cash received in the
total amount realized consists of the amount of cash received same distribution. Here, the $9,000 basis of Hart's partner-
plus the buyer's assumption of Carr' s share of partnership ship interest is first reduced by the $5,000 cash received,
liabilities. Thus, the total amount realized is $154,000 + with the remaining basis of $4,000 allocated as basis for the
($60,000 x 1/3) = $174,000. land received.
54. (d) The requirement is to determine the amount
60. (b) The requirement is to determine Day's basis in
of ordinary income that Carr should report on the sale of his
the land received in a nonliquidating distribution. If both
partnership interest. Although the sale of a partnership
cash and noncash property are received in a single distribu-
interest generally results in capital gain or loss, ordinary in-
tion, the basis for the partner's partnership interest is first
come must be recognized to the extent of the selling part-
reduced by the cash, before the noncash property. Since
ner's share of unrealized receivables and appreciated inven-
partnership distributions are generally nontaxable, a distrib-
tory. Here, Carr must report ordinary income to the extent
utee partner'sbasis for distributed property is generally the
of his 1/3 share of the unrealized accounts receivable of
same as the partnership's former basis for the property (a
$420,000, or $140,000.
transferred basis). Here, the basis of Day's partnership in-
55. (a) The requirement is to determine the amount and terest of $50,000 is first reduced by the $25,000 of cash re-
type of capital gain to be reported by Hart, Jr. from the sale ceived, and then reduced by the $15,000 adjusted basis of
of his partnership interest. Since the partnership interest was the land, to $10,000. Day's basis for the land received is
acquired by gift from Hart, Sr., Jr.'s basis would be the same $15,000.
as Sr.'s basis at date of gift, $60,000. Since Jr.'s basis is
61. (a) The requirement is to determine the amount of
determined from Sr.' s basis, Jr.' s holding period includes the
taxable gain that Jody must report as the result of a current
period the partnership interest was held by Sr. Thus, Hart,
distribution of cash and property from her partnership. No
Jr. will report a LTCG of $85,000 - $60,000 = $25,000.
loss can be recognized as a result of a proportionate current
56. (a) The requirement is to determine the amount of (nonliquidating) distribution, and gain will be recognized
L TCG to be reported by Roe on the sale of his partnership only if the amount of cash received exceeds the basis for the
interest. Roe's basis for his partnership interest of $7,500 partner's partnership interest. If both cash and noncash
must first be increased by his $22,500 distributive share of property are received in a single distribution, the basis for
partnership income, to $30,000. Since the selling price also the partner's interest is first reduced by the cash, before non-
cash property. Since the $20,000 cash received does not