Question

Liquidations:                                  
Determine whether the following statements are True or False:                           TRUE       FALSE
                                  
1. A liquidating cash distribution may reduce the recipient partner's basis below zero.                                  
2. A liquidating distribution of appreciated inventory reduces the recipient partner's basis in his partnership interest to below zero.

3. If a partner has a basis of $15,000 in a partnership, and receives a non liquidating distribution of land with an adjusted basis of $16,000, but a FMV of $18,000, there will be a gain of $1,000.                                  
4. A non liquidating distribution of only cash, may result in a deductible loss.                                  
5. A liquidating distribution of only land, may result in a deductible loss.                                  
6. In a nonliquidating distribution of property, the partner's basis must equal zero.                                  
7. In a nonliquidating distribution, if there is sufficient basis to the partner, the property received will have the same basis to the partner as the property had to the partnership.                                  
8. A partner recognizes a gain on a distribution only to the extent that cash received exceeds the partner's basis in the partnership.

9. Loss is recognized by the partner who receives a nonliquidating   distribution of cash, when the amount of cash is less than his basis in the partnership interest before the distribution.                                  
10. If a partner has a basis of $15,000 in a partnership, and receives a nonliquidating distribution of land with an adjusted basis of $16,000, but a FMV of $18,000, the land will have a basis of $15,000.      

Answer 1

1. partner`s adjusted basis in his/ her partnership interest is decreased ( but not below zero ) by money and adjusting basis of property distributed to the partner , hence statement is false.

2. liquidating distribution of appreciated inventory reduces recepient partners basis in his partnership interest but not below zero. hence statement is false.

3. true, gain = 15000 - 16000 = 1000.

4. true, a non liquidating distribution only in cash may result in deductible loss.

5. false , loss or gain may not be recongised at time of distribution.

6. false , partner`s interest is reduced ( but not below zero ) by liabilities.

7. true

8.true , recognizes a gain on a distribution only to extent that cash received exceeds the partner`s basis in the partnership.

9. true

10. false land will have a basis of 16000 dollars.