Question No. 1

Kathy is a 25% partner in the KDP Partnership and receives a parcel of land with a fair value of $150,000 (inside basis of $100,000) in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $200,000. KDP currently has a 754 election in effect and has no hot assets or liabilities. What is KDP's special basis adjustment from the distribution?

Multiple Choice

• $0.

• $50,000 positive basis adjustment.

• $100,000 positive basis adjustment.

• $100,000 negative basis adjustment.

Question No. 2

Which of the following statements regarding hot assets for purposes of disproportionate distributions is false?

Multiple Choice

• Hot assets include unrealized receivables.

• Hot assets include any inventory.

• Hot assets include substantially appreciated inventory.

• The definition of hot assets for distributions and sales of partnership interests differs.