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Exam 21: Partnerships

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Question 81

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Melissa is a partner in a continuing partnership.At the end of the current year,the partnership makes a proportionate,nonliquidating distribution to Melissa of $50,000 cash,inventory (basis of $22,000,fair market value of $20,000),and land (basis of $30,000,fair market value of $60,000).Melissa's basis in the partnership interest was $90,000 before the distribution.What is Melissa's basis in the inventory,land,and partnership interest following the distribution?

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Beginning basis in Melissa's interest...

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Question 82

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Loss cannot be recognized on a distribution from a partnership unless cash,unrealized receivables and/or § 1231 assets are the only items distributed.

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B) False

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Question 83

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Which of the following entity owners cannot participate in management of the entity?

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

Seven years ago,Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years.This year,when his adjusted basis in the property was $250,000,Paul transferred the property to the newly formed PLA LLC in exchange for a one-third interest in the LLC.PLA incurred $10,000 of transfer taxes and fees related to the property.PLA must treat the $260,000 basis in the property,fees,and expenses,as new MACRS property depreciable over 27.5 years.

The LN partnership reported the following items of income and deduction during the current tax year: revenues,$300,000;cost of goods sold,$180,000;tax-exempt interest income,$2,000;salaries to employees,$80,000;and long-term capital gain,$10,000.In addition,the partnership distributed $20,000 of cash to 50% partner Nina and $10,000 of cash to 50% partner Len.What is Nina's share of ordinary partnership income and separately stated items?

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" under § 465 is $30,000 (before deduction of any of the passive losses) .She also has $25,000 of passive income from other sources.How much of her ($60,000) allocable loss can Rebecca deduct on her current year's tax return?

During the current year,MAC Partnership reported the following items of receipts and expenditures: $600,000 sales,$80,000 utilities and rent,$200,000 salaries to employees,$20,000 guaranteed payment to partner Antonio,investment interest income of $4,000,a charitable contribution of $8,000,and a distribution of $30,000 to partner Carl.Antonio is a 25% general partner.Based on this information,what items will be reflected on Antonio's Schedule K-1?

In a proportionate liquidating distribution in which the partnership is liquidated,Marcus received cash of $60,000,inventory (basis of $10,000,fair market value of $12,000),and a capital asset (basis and fair market value of $22,000).Immediately before the distribution,Marcus's basis in the partnership interest was $100,000. a.How much gain or loss will Marcus recognize on the distribution? b.What is Marcus's basis in the inventory and the capital asset?

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. -Separately stated item

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods,treatment of research and experimental costs,calculation of the § 199 deduction,and the § 754 election.

Josh has a 25% capital and profits interest in the calendar-year GDJ Partnership.His adjusted basis for his partnership interest on October 15 of the current year is $300,000.On that date,the partnership liquidates and makes a proportionate distribution of the following assets to Josh. Partnership's Basis in Asset Asset's Fair Market Value Cash Inventory $ 70,000 120,000 $ 70,000 150,000 ​ a.Calculate Josh's recognized gain or loss on the liquidating distribution,if any. a.change if the partnership also distributed a small parcel of land it had held for investment to Josh? Assume the land has a $5,000 adjusted basis (FMV is $8,000) to the partnership. b. How would your answer to

Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership.The partnership reported $200,000 of net income from operations,a $2,000 short-term capital loss,and a $10,000 charitable contribution.In addition,the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy.Assuming the partnership has no beginning or ending liabilities,what is Katherine's basis in her partnership interest at the end of the year?

Karli owns a 25% capital and profits interest in the calendar-year KJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $200,000.On that date,she receives a proportionate nonliquidating distribution of the following assets: Partnership's Basis in Asset Asset's Fair Market Value Cash $120,000 $120,000 Inventory 50,000 60,000 Land (held for investment) 70,000 100,000 ​ a.Calculate Karli's recognized gain or loss on the distribution,if any. b.Calculate Karli's basis in the inventory received. c.Calculate Karli's basis in land received.The land is a capital asset. d.Calculate Karli's basis for her partnership interest after the distribution.

Which one of the following statements regarding partnership taxation is incorrect?

Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $100,000,fair market value of $130,000) and inventory (basis of $80,000,fair market value of $70,000) .After the distribution,Megan's bases in the land and inventory are,respectively:

Tom and William are equal partners in the TW Partnership.Just before TW liquidated,Tom's capital account balance was $50,000 and William's capital account balance was $30,000.To meet the substantial economic effect requirements,any liquidating cash distribution must be allocated in proportion to those ending capital account balances.

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. -Constructive liquidation scenario

In a proportionate nonliquidating distribution of cash and a capital asset,the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes: