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PROBLEM 12 Partnership Distributions- Distributions in Liquidation of the Partnership Code References: 55 64, 731(a), 732(b), 732(c), 733, and 735(a) Regulations: 55 1.731-1(a), 1.731-1(b), 1.732-1(b), and 1.732-1(c) QUESTIONS A and B are equal partners in the AB partnership. AB has the following assets: Fair Market Adjusted Basis Value Cash $ 60 $ 60 0 30 Accounts Receivable 30 30 Inventory Land (investment) 120 $210 $180 Total $75. A and B pur- A's basis in h 71 XDISTRIBUTIONS IN LIQUIDATION 12P-2 chased their interests from C and D in separate transactions spanning a three- year period without precipitating a termination. The partnership never has elected under $ 754. What is each partner's gain or loss and basis in the distrib uted assets if the partnership is liquidated as follows? 1. A and B each receives one-half of each asset. 2. A receives the land, one-half of the inventory, and one-half of the accounts receivable, and B receives the cash, one-half of the inventory, and one- half of the accounts receivable. 3. A receives the cash, one-half of the inventory, and one-half of the ac- counts receivable, and B receives the land, one-half of the inventory, and one-half of the accounts receivable. 4. A receives the land and the accounts receivable, and B receives the cash and inventory. 5. A receives the cash and accounts receivable, and B receives the land and the inventory. 71 XPROBLEM 13 Partnership Distributions- Distributions from a Collapsible Partnership Code References: $5 751(b) and 702(a)(7) Regulations: $5 1.751-1(b) and 1.751-1(g) example (2) QUESTIONS 1. The ABCD partnership has the following balance sheet: Fair Market Adjusted Basis Value Assets $240 $240 Cash 60 100 Inventory Capital Asset X 100 260 $400 $600 71 X13P-2 DISTRIBUTIONS FROM COLLAPSIBLE PARTNERSHIP Fair Market Adjusted Basis Value Capital $100 A 100 150 100 150 ona 150 $600 The adjusted basis of each partner's partnership interest is $100. A's interest is terminated when the partnership distributes $150 cash to him. a. What is A's taxable gain on the distribution? What is the character of this gain? b. What is the gain to the partnership on this distribution? What is the charac- ter of this gain? What is the partnership's adjusted basis in the inventory following the distribution? d. What is the reconstructed tax balance sheet of the partnership following the distribution? 2 A. B. C, and D are equal partners of the ABCD partnership. Each partner con- tributed $100 cash to the partnership. At the present time, ABCD's balance sheet is as follows: Fair Assets Market Adjusted Basis Value Inventory Capital Asset X $ 40 $150 360 650 $400 5800 Capital A $100 5300 100 200 100 200 100 200 $400 $800 The adjusted basis of each partner that the partnership will her interest. Following greed losses of the partnership on of 71 X enth.13P-3 PROBLEM 13 and the interests of B, C, and D each will be increased from one-fourth to four-thirteenths. a. What will be the amount and character of A's taxable gain on the transac- tion? b. What will be the amount and character of the taxable gain to B. C, and D on the transaction? C. What will be ABCD's adjusted basis in Capital Asset X following the distribution? d. What will be A's adjusted basis in the inventory following the distribu- tion? e. What will be the adjusted bases of A, B. C, and D's partnership interests following the distribution? 71 X