Question

Cari Hawkins is a 50% partner in the calendar year Hawkins-Henry Partnership. On January 1, 2015, her basis in her partnership interest is $160,000. The partnership has no taxable income or loss for the current year. In a nonliquidating distribution on December 15, the partnership distributes $120,000 cash to Cari and inventory proportionately to all partners. Cari’s share of the inventory has a basis of $50,000 (fair market value of $60,000). In January 2016, Cari asks your advice regarding treatment of 2015 operations and distributions. Using the format (1) facts, (2) issues, and (3) conclusion and analysis, draft a letter to Cari at the Hawkins-Henry Partnership (1622 E. Henry Street, St. Paul, MN 55118). Without including specific citations, your letter should address the following points and provide enough information for the client to understand the applicable tax provisions. a. How much gain or loss does the partnership recognize as a result of 2015 activities? b. How much gain or loss must Cari recognize in 2015? c. What is Cari’s basis in inventory received? d. What is Cari’s basis in her partnership interest at the end of 2015? e. Are there other considerations Cari and/or the partnership should address? Explain.

Answer 1

a)As per the data given in the question,there is no taxable income or loss in the current year.There is only expenses and other operational impact to be recognised as the activities carried during the year.

b)Cari's interest in the partnership is $160,000

During the year she has received an amount in cash of $120,000 and inventory whose market value is of $60,000.

So $120000+$60000=$180000 is the total receipts

Hence $180,000-$160,000 = $20,000

This $20,000 is the gain that cari must recognize in 2015

c) Cari's basis in the inventory received is book value basis since in the given data there is a specification of fair market value which is higher that the figure in the books.I assumed that $50,000 could only be Book Value.

d)Cari's basis in her partnership interest is $120,000 +$ 50,000 =$170,000

e)Yes. According to information I could firmly assume that the partnership business is not running good.All the partners decided to liquidate the partnership firm or business.In general we have to evaluate the measures taken to run the business before deciding upon to liquidate.Next we have to step into the demanding areas of buisness which has a reasonable future in the market.SWOT analysis,Six Sigma Total Quality Management ,Business process reengineering etc.,tecniques are to be deployed to run efficiently and effectively any kind of business.

These are some considerations that Cari and/or the partnershiip should address as per my knowledge.For successful running of anything one has to put full efforts on it.