1. [LO 1] Joey is a 25% owner of Loopy LLC. He no longer wants to be involved in the business. What options does Joey have to exit the busines?
2. [LO 1] Compare and contrast the aggregate and entity approaches for a sale of a partnership interest.
3. [LO 1] What restrictions might prevent a partner from selling his partnership interest to a third party?
4. [LO 1] Explain how a partners debt relief affects his amount realized in a sale of partnership interest.
5. [LO 1] Under what circumstances will the gain or loss on the sale of a partnership interest be characterized as ordinary rather than capital?
6. [LO 1] What are hot assets and why are they important in the sale of a partnership interest?
7. [LO 1] For an accrual-method partnership, are accounts receivable considered unrealized receivables? Explain.
8. [LO 1] Can a partnership have unrealized receivables if it has no accounts receivable?
9. [LO 1] How do hot assets affect the character of gain or loss on the sale of a partnership interest?
10. [LO 1] Under what circumstances can a partner recognize both gain and loss on the sale of a partnership interest?
11. [LO 1] Absent any special elections, what effect does a sale of partnership interest have on the partnership?
12. [LO 1] {Research} Generally, a selling partners capital account carries over to the purchaser of the partnership interest. Under what circumstances will this not be the case?
13. [LO 2] What distinguishes operating from liquidating distributions?
14. [LO 3] Under what circumstances will a partner recognize a gain from an operating distribution?
15. [LO 3] Under what circumstances will a partner recognize a loss from an operating distribution?
16. [LO 3] In general, what effect does an operating distribution have on the partnership?
17. [LO 3] If a partners outside basis is less than the partnerships inside basis in distributed assets, how does the partner determine his basis of the distributed assets in an operating distribution?
18. [LO 4] Under what conditions will a partner recognize gain in a liquidating distribution?
19. [LO 4] Under what conditions will a partner recognize loss in a liquidating distribution?
20. [LO 4] Describe how a partner determines his basis in distributed assets in cases in which a partnership distributes only money, inventory, and/or unrealized receivables in a liquidating distribution.
21. [LO 4] How does a partner determine his basis in distributed assets when the partnership distributes other property in addition to money and hot assets?
22. [LO 5] {Planning} SBT partnership distributes $5,000 cash and a parcel of land with a fair market value of $40,000 and a $25,000 basis to the partnership to Sam (30% partner). What factors must Sam and SBT consider in determining the tax treatment of this distribution?
23. [LO 5] Discuss the underlying concern to tax policy makers in distributions in which a partner receives more or less than his share of the partnership hot assets.
24. [LO 5] In general, how do the disproportionate distribution rules ensure that partners recognize their share of partnership ordinary income?
25. [LO 6] {Planning} Why would a new partner who pays more for a partnership interest than the selling partners outside basis want the partnership to elect a special basis adjustment?
26. [LO 6] List two common situations that will cause a partners inside and outside basis to differ.
27. [LO 6] Explain why a partnership might not want to make a §754 election to allow special basis adjustments.
28. [LO 6] When might a new partner have an upward basis adjustment following the acquisition of a partnership interest?
29. [LO 6] Are special basis adjustments mandatory? If so, when?
Problems
30. [LO 1] Jerry is a 30% partner in the JJM Partnership when he sells his entire interest to Lucia for $56,000 cash. At the time of the sale, Jerrys basis in JJM is $32,000. JJM does not have any debt or hot assets. What is Jerrys gain or loss on the sale of his interest?
31. [LO 1] Joy is a 30% partner in the JOM Partnership when she sells her entire interest to Hope for $72,000 cash. At the time of the sale, Joys basis in JOM is $44,000 (which includes her $6,000 share of JOM liabilities). JOM does not have any hot assets. What is Joys gain or loss on the sale of her interest?
