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P2-U11 · PART 2 · SOURCE CYCLE 2026-2027
Partnership Distributions and Liquidations
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Q1.No partner or related person bears an economic risk of loss for a Alder Partnership liability. How is it classified?
A nonrecourse liability
Q2.When distributed partnership debt has an issue price above its fair market value, how may the excess affect the partner?
The partner may have canceled-debt income
Q3.A partnership liability is considered a nonrecourse liability if: A. All partners are personally liable for the debt. B. Only one partner is liable for the liability. C. If only a general partner is liable for the liability. D. No partner has an economic risk of loss for that liability.
No partner has an economic risk of loss for that liability.
Q4.Which of the following statements about partnerships is not correct? A. A partnership distribution must be taken into account in determining the partner’s distributive share of the partnership’s income or loss. B. Unless there is a complete liquidation of a partner’s interest, the basis of property (other than cash) distributed to the partner is its adjusted basis to the partnership immediately before the distribution. C. A partnership generally does not recognize any gain or loss because of distributions it makes to partners. D. The basis of property distributed to a partner cannot be more than the adjusted basis of his interest in the partnership, reduced by any cash received in the same transaction.
A partnership distribution must be taken into account in determining the partner’s distributive share of the partnership’s income or loss.
Q5.A limited partner generally has no obligation to contribute: ___________________. A. Additional capital to the partnership. B. Initial investment. C. Debt basis to the partnership. D. Machinery or cash.
Additional capital to the partnership.
Q6.A partner's basis is increased by which of the following items? A. A partner's distributive share of nontaxable partnership income. B. The partner's distributive share of the partnership losses. C. The partner's distributive share of nondeductible partnership expenses. D. The partner's distributive share of any Section 179 expenses.
A partner's distributive share of nontaxable partnership income.
Q7.Faille Fisheries, LLC is a calendar year, cash-basis partnership that is closing down. When a partnership is discontinuing operations and winding down its business affairs, when does its tax year officially end? A. A terminating partnership's tax year ends when the entity dissolves, according to state law. B. The partnership's tax year ends on the date of termination. C. The partnership's tax year ends on the date of the final distribution. D. The partnership's tax year ends on December 31.
The partnership's tax year ends on the date of termination.
Q8.A partner who sells a partnership interest at a gain has to report all the gain in the year of the sale unless the sale is treated as: A. An installment sale. B. As a section 1031 exchange. C. As an involuntary conversion. D. As an Opportunity Zone conversion.
An installment sale.
Q9.When property is distributed by a partnership to a partner, the distributee partner's holding period for property: ___________________. A. Is based entirely on the date of distribution. B. Is based on the time period that the distributee partner has been an owner in the partnership. C. Includes the period the property was held by the partnership. D. Does NOT include the period the property was held by the partnership.
Includes the period the property was held by the partnership.
Q10.For purposes of determining a partner's distributive share, a partnership interest purchased by one family member from another family member is considered: A. A gift from the seller. B. An illegal transaction. C. A sale of property. D. A nontaxable exchange.
A gift from the seller.