Chapter 14 Partner/Partnership Sales and Disguised Sales

Reading:

Paragraphs 1401-1403.02

1. A partner owns a capital asset. When will a sale of the asset for a gain to the partnership produce ordinary income?

2. What are the closest relatives you can think of that dont qualify as related parties?

3. Partner A in the ABC partnership (an equal partnership between A, B, and C) sells some land to the partnership. As basis in the land is $200,000, and the FMV and sales price is $300,000. A had held the land for investment, but ABC is a developer, so the land is inventory to it. What is the character of the gain? What would your answer be if B is As sister? What would your answer be if B is As aunt?

4. Partner X in the XYZ partnership (an equal partnership between X, Y, and Z) sells some land to the partnership. Xs basis in the land is $200,000, and the FMV and sales price is $150,000. Is the loss deductible to X? What would your answer be if Y is Xs father? What would your answer be if Y is Xs cousin? Suppose that Y is Xs father, X sells the land to the partnership for $150,000, and the partnership later sells the land for $180,000. What is the partnerships gain or loss on the sale? What is your answer if the partnership sells the land for $230,000?

5. Partner D of the equal DEF partnership contributes property (FMV = $100,000, basis = $60,000) to the partnership. One year later, the partnership distributes $50,000 cash to partner D. How is the original contribution and the later distribution treated if it is not a disguised sale? How are they treated if it is a disguised sale?

Reading:

Paragraphs 1403.04, 1403.05.

1. A partner contributes property to a partnership. The partnership later distributes the property to another partner. The contributing partner will have to recognize gain or loss if the latter distribution is made within how many years of the contribution?

2. Suppose Joe contributes land (basis = $40,000, FMV = $50,000) to a partnership in exchange for a partnership interest and three years later the partnership distributes the land to Susan (at the time of the distribution the lands basis = $40,000, and FMV = $70,000). The land is a capital asset to Joe and the partnership, but an ordinary asset to Susan. Joe and Susan are both partners in the partnership. If Joe owns 25% and Susan owns 60% of the partnership at the time of the distribution, how much gain will Joe have to recognize, what will its character be, what will be Joes basis in his partnership interest, and what is Susans basis in the property (assume Susans basis in the partnership interest before the distribution is $100,000)?

Would your answer be any different if Susan only owned 40%?

What would your answer be if Susan owned 40% and the FMV at the time of the distribution was only $45,000?

What would your answer be if the propertys FMV at the time of the contribution was only $35,000, Susan owned 40% of the partnership, and the FMV at the time of the distribution was only $30,000? What would your answer be if Susan owned 60% of the partnership?

6. In 2015, Adriana contributes land (FMV = $100,000, basis = $60,000) to the Apex Partnership, of which she is a 20% partner. Twenty-two months later, the partnership, which held the land for investment, distributes the land to Beatrice, a 40% partner in Apex, who is a land developer and will hold it for development. Which Code Section applies here, 704, 707, or 737? Would your answer to the previous question be any different if the time between contribution and distribution had been six years instead of 22 months? Assuming the time between contribution and distribution is six years, what is the tax effect if the FMV of the land at distribution is $150,000 and its basis is still $60,000? What if the FMV at distribution was only $70,000? What if the FMV at distribution is only $40,000?

7. Christy contributes land (FMV = $50,000, basis = $30,000) to the ABC partnership, and four years later gets a distribution (that was not assured at the time of the original contribution) of another piece of land (FMV = $60,000, basis = $50,000). Her basis in the partnership interest immediately before the distribution is only $55,000. Assume that she has not contributed any more properties to the partnership, so her net precontribution gain is still $20,000 (the unrealized appreciation on the property she contributed), and has been for four years. How much gain will she have to realize, what will be her basis in the partnership after the distribution, and what will the partnerships basis in the original contributed property be?

8. Assume the same facts as in the previous problem, except that Christys basis in her partnership interest immediately before the distribution was $30,000, and in the last four years she had contributed property with a FMV at the time of $20,000 and a basis of $27,000. Her net precontribution gain was therefore $20,000 - $7,000 = $13,000. How much gain will she have to realize, what will be her basis in the partnership after the distribution, and what will the partnerships basis in the original contributed property be?

1. Sybil transfers land (FMV = $200,000, basis = $120,000 to the Eve Partnership, in which she is a 1/3 partner. Twenty months later the partnership distributes property (FMV = $150,000, basis = $50,000) to Sybil, and her basis in her partnership interest immediately before the distribution (and before the addition of any gain under Section 737) is $120,000 Which would this set of transactions be taxed under, Code Section 707 or 737? If, at the time of the contribution, it was relatively certain that the distribution would be made, what are the tax effects of these transactions? Assume that at the time of the contribution the distribution was not assured in any way. How would these transactions be taxed?