Question 1. [LO 3] Karen has a $68,000 basis in her 50% partnership interest in the K

1. [LO 3] Karen has a $68,000 basis in her 50% partnership interest in the KD Partnership before receiving a current distribution of $6,000 cash and land with a fair market value of $35,000 and a basis to the partnership of $18,000.

a. What is the amount and character of Karen’s recognized gain or loss?

b. What is Karen’s basis in the land?

c. What is Karen’s remaining basis in her partnership interest?

2. [LO 3] Pam has a $27,000 basis (including her share of debt) in her 50% partnership interest in the Meddoc partnership before receiving any distributions. This year Meddoc makes a current distribution to Pam of a parcel of land with a $40,000 fair market value and a $32,000 basis to the partnership. The land is encumbered with a $15,000 mortgage (the partnership’s only liability).

a. What is the amount and character of Pam’s recognized gain or loss?

b. What is Pam’s basis in the land?

c. What is Pam’s remaining basis in her partnership interest?

3. [LO 3] {Research} Two years ago, Kimberly became a 30% partner in the KST Partnership with a contribution of investment land with a $10,000 basis and $16,000 fair market value. On January 2 of this year, Kimberly has a $15,000 basis in her partnership interest and none of her pre-contribution gain has been recognized. On January 2, Kimberly receives an operating distribution of a tract of land (not the contributed land) with a $12,000 basis and an $18,000 fair market value.

a. What is the amount and character of Kimberly’s recognized gain or loss on the distribution?

b. What is Kimberly’s remaining basis in KST after the distribution?

c. What is KST’s basis in the land Kimberly contributed after Kimberly receives this distribution?

4. [LO 4] Rufus is a one-quarter partner in the Adventure partnership. On January 1 of the current year, Adventure distributes $13,000 cash to Rufus in complete liquidation of his interest. Adventure has only capital assets and no liabilities at the date of the distribution. Rufus’ basis in his partnership interest is $18,500.

a. What is the amount and character of Rufus’ recognized gain or loss?

b. What is the amount and character of Adventure’s recognized gain or loss?

c. If Rufus’ basis is $10,000 at the distribution date rather than $18,500, what is the amount and character of Rufus’ recognized gain or loss?

5. [LO 4] The Taurin Partnership (calendar-year-end) has the following assets as of December 31 of the current year:

Tax Basis FMV

Cash $ 45,000 $ 45,000

Accounts receivable 15,000 30,000

Inventory 81,000 120,000

Totals $ 141,000 $ 195,000

On December 31, Taurin distributes $15,000 of cash, $10,000 (FMV) of accounts receivable, and $40,000 (FMV) of inventory to Emma (a 1/3 partner) in termination of her partnership interest. Emma’s basis in her partnership interest immediately prior to the distribution is $40,000.

a. What is the amount and character of Emma’s recognized gain or loss on the distribution?

b. What is Emma’s basis in the distributed assets?

c. If Emma’s basis before the distribution was $55,000 rather than $40,000, what is Emma’s recognized gain or loss and what is her basis in the distributed assets?

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