Partner Tom Transferred Property (Basis of $20,000; Fair Market Value

question 52

Multiple Choice

Partner Tom transferred property (basis of $20,000; fair market value of $50,000) to the TUV Partnership in exchange for a partnership interest. At a later date, when Tom's outside basis for his partnership interest was $70,000, Tom received a $50,000 cash distribution from the partnership. Which one of the following statements is not true?

• A) If the cash distribution occurred two months after the property contribution, the IRS may treat the transaction as a disguised sale.
• B) If the transaction is treated as a disguised sale, Tom's basis in the partnership interest will be $20,000.
• C) If Tom would have made the property contribution anyway, even if he knew that the partnership would probably not have any cash to distribute to him, the IRS would not likely contend the transaction was a disguised sale.
• D) If the IRS treated the transaction as a disguised sale, the partnership's basis in the property would be $50,000.

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Definitions:

Successful-Efforts Method

An accounting approach used in the oil and gas industry where costs are capitalized only if they lead to successful finding of new oil or gas reserves.

Drilling

The process of creating holes in the earth's surface in preparation for the exploration or extraction of resources, such as oil and gas.

Oil Wells

Structures drilled into the earth for the purpose of extracting petroleum and other hydrocarbons.

Appraised Fair Value

The estimated market value of an asset based on the judgment of a qualified appraiser at a specific time.