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Exam 21: Partnerships

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Question 31

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George and James are forming the GJ Partnership.George contributes $600,000 cash and James contributes nondepreciable property with an adjusted basis of $400,000 and a fair market value of $750,000.The property is subject to a $150,000 liability,which is also transferred into the partnership and is shared equally by the partners for basis purposes.George and James share in all partnership profits equally except for any precontribution gain,which must be allocated according to the statutory rules for built-in gain allocations. a.​ What is James's adjusted tax basis for his partnership interest immediately after the partnership is formed? b.What is the partnership's adjusted basis for the property contributed by James? c.​ If the partnership sells the property contributed by James for $800,000,how is the tax gain allocated between the partners?

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a.James's adjusted basis in the partn...

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Question 32

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George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP,LLC (not a publicly-traded partnership interest).The future profits of the partnership are subject to normal operating risks.George will report ordinary income equal to the fair market value of the profits interest,but the capital interest will not be currently taxed to him.

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B) False

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Question 33

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During the current tax year,Jordan and Whitney each contributed $50,000 to form the J&W LLC.Each member has a 50% interest in LLC capital,profits,and losses (including deemed losses in the "constructive liquidation scenario") ,except that depreciation expense is allocated 40% to Jordan and 60% to Whitney.During the first year,the LLC reported income (before depreciation expense) of $20,000 and had depreciation expense of $10,000.The LLC incurred recourse debt (that was personally guaranteed by both of the LLC members) of $60,000.Partnership assets are $170,000 at the end of the year.Under the constructive liquidation scenario,how is the recourse debt allocated to Jordan and Whitney?

Jonathon owns a one-third interest in a liquidating partnership.Immediately before the liquidation,Jonathon's basis in the partnership interest is $60,000.The partnership distributes cash of $32,000 and two parcels of land (each with a fair market value of $10,000) .Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000.Jonathon's basis in the two parcels of land is:

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Schedule K-1

Sharon contributed property to the newly formed QRST Partnership.The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date.The property was also encumbered by a $120,000 nonrecourse debt,which was transferred to the partnership on that date.Another partner,Rochelle,shares 30% of the partnership income,gain,loss,deduction,and credit.Under IRS regulations,Rochelle's share of the nonrecourse debt for basis purposes is:

Which of the following is a correct definition of a concept related to partnership taxation?

Nicholas,a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year,received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Nicholas reports a $10,000 ordinary loss from partnership operations,and the $50,000 guaranteed payment as ordinary income.

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

William is a general partner in the WST partnership.During the current year,he receives a guaranteed payment of $10,000 for services he provides to the partnership,and his distributive share of partnership income is $30,000.William is required to pay self-employment tax on the $10,000 guaranteed payment,but not on his distributive share of partnership income.

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.

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Startup costs

Your client owns a parcel of land that has depreciated in value.He wants to know if there is a way he can contribute the property to his partnership,have the partnership sell the property,and convert the existing capital loss into an ordinary loss.He also wants to know if part of the loss would be allocated to his other partners.What is your reaction?

A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms.b.Partner's percentage allocation of current operating income.c.Might affect any two partners' tax liabilities in different ways.d.Brokerage and registration fees incurred for promoting and marketing partnership interests.e.Transfer of asset to partnership followed by immediate distribution of cash to partner.f.Must have at least one general and one limited partner.g.All partners are jointly and severally liable for entity debts.h.Theory treating the partner and partnership as separate economic units.i.Partner's basis in partnership interest after tax-free contribution of asset to partnership.j.Partnership's basis in asset after tax-free contribution of asset to partnership.k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.m.Allows many unincorporated entities to select their Federal tax status.n.No correct match provided. -Limited liability company

Which of the following statements,if any,about a multi-member LLC is false?

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?

Nicky's basis in her partnership interest was $150,000,including her $40,000 share of partnership liabilities.The partnership decides to liquidate,and after repaying all liabilities,distributes all remaining assets proportionately to the partners.Nicky receives $30,000 cash and accounts receivable with a $50,000 basis and a $48,000 fair market value to the partnership.What gain or loss does Nicky recognize,and what is her basis in the accounts receivable?

Misty and John formed the MJ Partnership.Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations,the following events occurred: the partnership had a net taxable income of $20,000;Misty received a distribution of $12,000 cash from the partnership;and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year.Misty's adjusted basis for her partnership interest at year end is:

Cassandra is a 10% limited partner in C&C,Ltd.Her basis in the interest is $60,000 before loss allocations,including her $30,000 share of the partnership's nonrecourse debt.(This debt is not qualified nonrecourse financing. ) Cassandra is also a 10% limited partner in MNOP,in which her basis is $30,000.Cassandra is allocated an $80,000 loss from C&C,and $20,000 of income from MNOP.How much of the loss from C&C may Cassandra deduct? Under what Code provisions are the remaining losses suspended?