Partnership Taxation Paper 5

1

Irving Aster, Dennis Brill, and Robert Clark were partners who shared profits and losses equally. On February 28, 2012, Aster sold his interest to Phil Dexter. On March 31, 2012, Brill died, and his estate held his interest for the remainder of the year. The partnership continued to operate and for the fiscal year ending June 30, 2012, it had a profit of $45,000. Assuming that partnership income was earned on a pro rata monthly basis and that all partners were calendar-year taxpayers, the distributive shares to be included in 2012 gross income should be






2

Curry’s sale of her partnership interest causes a partnership termination. The partnership’s business and financial operations are continued by the other members. What is (are) the effect(s) of the termination?
I. There is a deemed distribution of assets to the remaining partners and the purchaser.
II. There is a hypothetical recontribution of assets to a new partnership.






3

Cobb, Danver, and Evans each owned a one-third interest in the capital and profits of their calendar-year partnership. On September 18, 2012, Cobb and Danver sold their partnership interests to Frank, and immediately withdrew from all participation in the partnership. On March 15, 2013, Cobb and Danver received full payment from Frank for the sale of their partnership interests. For tax purposes, the partnership






4

Partnership Abel, Benz, Clark & Day is in the real estate and insurance business. Abel owns a 40% interest in the capital and profits of the partnership, while Benz, Clark, and Day each owns a 20% interest. All use a calendar year. At November 1, 2012, the real estate and insurance business is separated, and two partnerships are formed: Partnership Abel & Benz takes over the real estate business, and Partnership Clark & Day takes over the insurance business. Which one of the following statements is correct for tax purposes?






5

Under which of the following circumstances is a partnership that is not an electing large partnership considered terminated for income tax purposes?
I. Fifty-five percent of the total interest in partnership capital and profits is sold within a twelve-month period.
II. The partnership’s business and financial operations are discontinued.






6

David Beck and Walter Crocker were equal partners in the calendar-year partnership of Beck & Crocker. On July 1, 2013, Beck died. Beck’s estate became the successor in interest and continued to share in Beck & Crocker’s profits until Beck’s entire partnership interest was liquidated on April 30, 2013. At what date was the partnership considered terminated for tax purposes?






7

On December 31, 2012, after receipt of his share of partnership income, Clark sold his interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of $15,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or appreciated inventory. What is Clark’s gain or loss on the sale of his partnership interest?






8

On April 1, 2012, George Hart, Jr. acquired a 25% interest in the Wilson, Hart, and Company partnership by gift from his father. The partnership interest had been acquired by a $50,000 cash investment by Hart, Sr. on July 1, 2006. The tax basis of Hart, Sr.’s partnership interest was $60,000 at the time of the gift. Hart, Jr. sold the 25% partnership interest for $85,000 on December 17, 2012. What type and amount of capital gain should Hart, Jr. report on his 2012 tax return?






9

On June 30, 2012, James Roe sold his interest in the calendar-year partnership of Roe & Doe for $30,000. Roe’s adjusted basis in Roe & Doe at June 30, 2012, was $7,500 before apportionment of any 2012 partnership income. Roe’s distributive share of partnership income up to June 30, 2012, was $22,500. Roe acquired his interest in the partnership in 2007. How much long-term capital gain should Roe report in 2012 on the sale of his partnership interest?






10

Stone and Frazier decided to terminate the Woodwest Partnership as of December 31. On that date, Woodwest’s balance sheet was as follows:
Cash $2,000
Land (adjusted basis) 2,000
Capital—Stone 3,000
Capital—Frazier 1,000
The fair market value of the land was $3,000. Frazier’s outside basis in the partnership was $1,200. Upon liquidation, Frazier received $1,500 in cash. What gain should Frazier recognize?






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