Question

Which of the following statements is FALSE concerning the requirements of the atom bomb test (constructive liquidation) of Regulation Section 1.752-1? A) Limited partners, not general partners, are deemed to have their interests liquidated, B) Partners must restore negative capital accounts after constructive liquidation, C) Partnership assets are considered to be worthless and sold for their worthless value, D) Partnership liabilities are deemed to be due and payable.

Answer 1

Answer is option (A) Limited partners, not general partners, are deemed to have their interests liquidated

Explanation;

Under the regulations, all partners are deemed to have their interests liquidated. Thus option (A) is false because this tells only about limited partners deemed to have their interests liquidated.

Other options are correct because upon a constrcuctive liquidation following events are deemed to occur simultaneously;

·        Partners must restore negative capital accounts after constructive liquidation

·        Partnership assets (including cash) are considered to be worthless and sold for their worthless value

.    Partnership liabilities are deemed to be due and payable.