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Exam 14: Partnerships and Limited Liability Entities

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Question 71

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George is a limited partner in the GLH Partnership.His basis is $40,000 before considering the current year operations and includes a $20,000 recourse debt share and a $10,000 nonrecourse debt share.The nonrecourse debt is not treated as qualified nonrecourse financing.GLH reported a $200,000 loss for the year of which George's 40% share is $80,000.George has passive income of $50,000 from another activity (not eligible for the special real estate deduction) .He has no business losses for the year from other sources.How much of the $80,000 GLH loss can George deduct this year?

A) $10,000.
B) $30,000.
C) $40,000.
D) $50,000.
E) $80,000.

F) B) and E)
G) B) and C)

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Question 72

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Match each of the following statements with the numbered 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.Partnership in which partners are liable only for any partner's malpractice. e.Amount that might be reported on either form 1065, page 1 or, on Schedule K. f.Transfer of asset to partnership followed by immediate distribution of cash to partner. g.Must have at least one general and one limited partner. h.Long-term capital gain might be recharacterized as ordinary income.i.All partners are jointly and severally liable for entity debts. j.Theory treating the partner and partnership as separate economic units. k.Partner's basis in partnership interest after tax-free contribution of asset to partnership.l.Partnership's basis in asset after tax-free contribution of asset to partnership. m.One way to calculate a partner's economic interest in the partnership.n.Owners are members. o.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.p.Participates in management. q.Not liable for entity debts. r.No correct match provided. -Disguised sale

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Question 73

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Harry and Sally are considering forming a partnership.Both taxpayers use the calendar year and are cash basis taxpayers.The partnership will not be a tax shelter.The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting.Moreover, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

DDP Partnership reported gross income from operations of $125,000, a long-term capital gain of $5,000, a short-term capital loss of $2,000, and a charitable contribution of $5,000.On its Schedule K, the partnership reports ordinary business income of $120,000, a long-term capital gain of $5,000, and a short-term capital loss of $2,000.

Match each of the following statements with the numbered 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.Partnership in which partners are liable only for any partner's malpractice. e.Amount that might be reported on either form 1065, page 1 or, on Schedule K. f.Transfer of asset to partnership followed by immediate distribution of cash to partner. g.Must have at least one general and one limited partner. h.Long-term capital gain might be recharacterized as ordinary income.i.All partners are jointly and severally liable for entity debts. j.Theory treating the partner and partnership as separate economic units. k.Partner's basis in partnership interest after tax-free contribution of asset to partnership.l.Partnership's basis in asset after tax-free contribution of asset to partnership. m.One way to calculate a partner's economic interest in the partnership.n.Owners are members. o.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.p.Participates in management. q.Not liable for entity debts. r.No correct match provided. -Carried interest

In the current year, Derek formed an equal partnership with Cody.Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000.Derek also contributed $50,000 cash to the partnership.Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000.The land contributed by Derek was encumbered by a $60,000 nonrecourse debt.The land contributed by Cody was encumbered by $40,000 of nonrecourse debt.Assume that the partners share debt equally.Immediately after the formation, what is the basis of Cody's partnership interest?

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.Theory under which a partnership's recourse debt is shared among the partners. 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. -Foreign tax credit vs.deduction

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? Assume that Cassandra has no business losses from other sources.

Nicholas, a one-third partner, received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Assuming that no loss limitation rules apply, Nicholas reports a $10,000 ordinary loss from partnership operations and the $50,000 guaranteed payment as ordinary income.

Match each of the following statements with the numbered 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.Partnership in which partners are liable only for any partner's malpractice. e.Amount that might be reported on either form 1065, page 1 or, on Schedule K. f.Transfer of asset to partnership followed by immediate distribution of cash to partner. g.Must have at least one general and one limited partner. h.Long-term capital gain might be recharacterized as ordinary income.i.All partners are jointly and severally liable for entity debts. j.Theory treating the partner and partnership as separate economic units. k.Partner's basis in partnership interest after tax-free contribution of asset to partnership.l.Partnership's basis in asset after tax-free contribution of asset to partnership. m.One way to calculate a partner's economic interest in the partnership.n.Owners are members. o.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.p.Participates in management. q.Not liable for entity debts. r.No correct match provided. -Interest expense

Carli contributes land to the newly formed CD Partnership in exchange for a 30% interest.The land has an adjusted basis and fair market value of $300,000 and is subject to a liability of $100,000, which the partnership assumes.None of this liability is repaid at year-end.At the end of the year, the partnership owes payables of $20,000.Assume that all liabilities are allocated proportionately to the partners.Total partnership income for the year is $400,000.What is Carli's basis in her partnership interest at the end of the year?

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.Ashley 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.

A limited partnership (LP) offers all partners protection from claims by the LP's creditors.

What are syndication costs, and how are they treated for tax purposes?

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.

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.Theory under which a partnership's recourse debt is shared among the partners. 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. -Economic effect test

Patricia is a 25% owner and an active member in the PBK LLC, which operates a qualified trade or business for purposes of the deduction under § 199A.Patricia's distributive share of qualified income from the LLC is $250,000 for the year (the LLC's income is $1,000,000) .Her share of the LLC's W-2 wages is $40,000, and she received a guaranteed payment for services of $30,000.Her share of the LLC's unadjusted basis immediately after acquisition of qualified property is $1,200,000.How much is her qualified business income for this separate trade or business?

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