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Exam 14: Partnerships and Limited Liability Entities

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Question 51

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Before allocations for the current year, Marvin's basis in the MR LLC, in which Marvin is not an active member, is $50,000.His basis includes $10,000 of debt that he guaranteed, and $20,000 of nonrecourse debt that is not qualified nonrecourse financing.Marvin has passive income from other sources of $40,000.The LLC allocates a loss of $60,000 to Marvin.After application of the loss limitation rules, Marvin can deduct $40,000.

A) True
B) False

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Question 52

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Tim, Al, and Pat contributed assets to form the equal TAP Partnership.Tim contributed cash of $40,000 and land with a basis of $80,000 fair market value of $60,000) .Al contributed cash of $60,000 and land with a basis of $50,000 fair market value of $40,000) .Pat contributed cash of $60,000 and a fully depreciated property $0 basis) valued at $40,000.Which of the following tax treatments is not correct?

A) Tim's basis in his partnership interest is $120,000.
B) Al realizes and recognizes a loss of $10,000.
C) Pat realizes a gain of $40,000 but recognizes $0 gain.
D) TAP has a basis of $80,000, $50,000, and $0 in the land and property excluding cash) contributed by Tim, Al, and Pat, respectively.
E) All of these statements are correct.

F) B) and D)
G) B) and C)

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Question 53

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Rebecca is a limited partner in the RST Partnership, which is not publicly traded.Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is $60,000) .Rebecca has a $40,000 adjusted basis outside basis) for her interest in RST before deduction of any of the passive losses) .Her amount "at risk" is $30,000 before deduction of any of the passive losses) .She also has $25,000 of passive income from other sources.She has no business losses for the year from other sources.How much of her $60,000) allocable RST loss can Rebecca deduct on her current year's tax return?

Match each of the following statements with the terms below that provide the best definition. -Disguised sale

The partnership agreement might provide, for example, that the first $40,000 of ordinary income is allocated to Partner A. Allocating income in this manner is an example of a separately stated item.

Kristie is a 25% member in the KLM LLC.At the end of the year, KLM has accounts payable of $60,000 recourse to the LLC but not guaranteed by the LLC members) , and a nonrecourse debt related to real estate of $300,000 meets the at risk limitation requirements) .In addition, Kristie personally guaranteed a $50,000 liability for KLM's equipment purchases.Which one of the following shows the information that should be reported on Kristie's Schedule K-1 for the year?

A partnership will take a carryover basis in an asset it acquires when:

Samuel is the managing general partner of STU, in which he owns a 25% interest.For the year, STU reported ordinary income of $400,000 after deducting all guaranteed payments) .In addition, the LLC reported interest income of $12,000.Samuel received a guaranteed payment of $120,000 for services he performed for STU.How much income from self-employment did Samuel earn from STU?

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.She received a $10,000 cash distribution from the partnership during the year, and her share of partnership income is $15,000.Her share of partnership liabilities on the last day of the partnership year is $20,000.Ashley's outside basis for her partnership interest at the end of the year is $45,000.

Which of the following statements is correct regarding partnership or C corporation tax rates?

Match each of the following statements with the terms below that provide the best definition. -Publicly-traded partnership

Stephanie is a calendar year cash basis taxpayer.She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end.The partnership's operating income after deducting guaranteed payments) was $120,000 $10,000 per month) and $144,000 $12,000 per month) , respectively, for the partnership tax years ended September 30, 2018 and 2019.The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30, 2018 and 2019.How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31, 2018?

Which one of the following is an example of a special allocation of partnership income?

Syndication costs arise when partnership interests are being marketed to investors.These costs cannot be amortized or deducted.

Allison is a 40% partner in the BAM Partnership.At the beginning of the tax year, Allison's basis in the partnership interest was $100,000, including her share of partnership liabilities.During the current year, BAM reported an ordinary loss of $60,000 before the following payments to the partners) .In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee.At the end of the year, Allison's share of partnership liabilities decreased by $10,000.Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Palmer contributes property with a fair market value of $4,000,000 and an adjusted basis of $3,000,000 to AP Partnership.Palmer shares in $3,000,000 of partnership debt under the liability sharing rules, giving him an initial adjusted basis for his partnership interest of $6,000,000.One month after the contribution, Palmer receives a cash distribution from the partnership of $2,000,000.Palmer would not have contributed the property if the partnership had not contractually obligated itself to make the distribution.Assume Palmer's share of partnership liabilities will not change as a result of this distribution. a.Palmer will likely recognize a $500,000 [$4,000,000 - $3,000,000) × 50% ] gain on the transaction.Palmer received a cash payment equal to one-half the value of the property he contributed.The IRS would likely treat this as a disguised sale of the property.A disguised sale is presumed to occur when a contractual agreement requires a contribution by a partner to be followed within two years a.Under the IRS's likely treatment of this transaction, what is the amount of gain or loss that Palmer will recognize because of the $2,000,000 cash distribution? b.What is the partnership's basis for the property after the distribution? c.If Palmer is unhappy with this result, can you suggest a possible alternative that may provide him with a better answer?

Steve's basis in his SAW Partnership interest is $200,000 at the beginning of the tax year, including all adjustments.His allocable share of partnership items are as follows: $120,000) of ordinary loss, $6,000 tax-exempt interest income, and a $14,000 long-term capital gain.In addition, the LLC distributed $20,000 of cash to Steve during the year.During the year, Steve's share of partnership debt increased by $10,000.Steve's ending basis in his LLC interest is $80,000.

Meredith is a passive 30% member of the MNO LLC.She is not a managing member and she does not participate in any activities of the LLC.Her interest is more in the nature of an investment.In the current year, Meredith's distributive share of income from the LLC was $50,000.In addition, she received a guaranteed payment of $40,000 for the use of her capital.Assume that her income from other sources exceeds $500,000.How much of Meredith's LLC income will be subject to the self-employment SE) tax under the Proposed Regulations) and the net investment income NII) tax? Disregard the additional Medicare tax on upper-income taxpayers.)

TEC Partners was formed during the current tax year.It incurred $10,000 of organizational expenses, $80,000 of startup expenses, and $5,000 of transfer taxes to retitle property contributed by a partner.The property had been held as MACRS property for ten years by the contributing partner, and had an adjusted basis to the partner of $300,000 and fair market value of $400,000.Which of the following statements is correct regarding these items?