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Exam 21: Partnerships

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Question 51

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Beth sells her 25% partnership interest to Katie for $50,000 cash on July 1 of the current tax year.Katie also assumed Beth's share of the partnership's liabilities.Beth's basis in her partnership interest at the beginning of the year was $40,000,including a $15,000 share of partnership liabilities.The partnership's income for the entire year was $100,000,and Beth's share of partnership debt was $10,000 as of the date she sold the partnership interest.Assume the partnership has no hot assets and that its income is earned evenly throughout the year.Beth recognizes a gain of $12,500 on the sale.

A) True
B) False

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Question 52

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When property is contributed to a partnership for a capital and profits interest,the holding period of the contributing partner's interest:

A) Always starts the day after the contribution date.
B) Always starts the day the property was contributed.
C) May include the holding period of the contributed property.
D) Never includes the holding period of the contributed property.
E) None of the above.

F) A) and E)
G) A) and C)

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Question 53

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If a partnership allocates losses to the partners,the partners must first apply the passive loss limitations,then the basis limitation,and finally the at-risk limitations.If all three hurdles are met,the partner may deduct the loss.

Lexi and Allie formed a partnership.Lexi received a 30% interest in partnership capital and profits in exchange for land with a basis of $50,000 and a fair market value of $90,000.Allie received a 70% interest in partnership capital and profits in exchange for $210,000 of cash.Three years after the contribution date,the land contributed by Lexi is sold by the partnership to a third party for $120,000.How much taxable gain will Lexi recognize from the sale?

Which of the following is not true regarding a limited liability company?

JLK Partnership incurred $15,000 of organizational costs and $75,000 of startup costs in 2011.JKL may deduct $5,000 each of organizational and startup costs,and the remaining costs ($10,000 of organizational costs and $70,000 of startup costs)may be amortized over 180 months.

Which of the following is an election or calculation made by the partner rather than the partnership?

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 the partners share debt equally.Immediately after the formation,what is the basis of Cody's partnership interest?

Marissa is a 50% partner in the BAM Partnership.At the beginning of the tax year,Marissa's basis in the partnership interest was $200,000,including her share of partnership liabilities.During the current year,BAM reported an ordinary loss of $100,000.In addition,BAM distributed $10,000 to Marissa and paid partner Brian a $20,000 consulting fee (neither of these amounts was deducted in determining the $100,000 loss from operations) .At the end of the year,Marissa's share of partnership liabilities decreased by $30,000.Assuming loss limitation rules do not apply,Marissa's basis in the partnership interest at the end of the year is:

Erika contributed property with a basis of $30,000 and a value of $40,000 to the BE Partnership in exchange for a 40% interest in partnership capital and profits.During the first year of partnership operations,BE had net taxable income of $60,000.The partnership distributed $10,000 cash to Erika.Erika's adjusted basis (outside basis) for her partnership interest at year-end is:

In a proportionate liquidating distribution,UVW Partnership distributes to partner William cash of $25,000,accounts receivable (basis of $10,000 and fair market value of $8,000),and land (basis of $50,000 and fair market value of $60,000).William's basis was $75,000 before the distribution.On the liquidation,William recognizes no gain or loss,and he takes a basis of $10,000 in the accounts receivable,and $50,000 in the land.

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?

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 equally between the partners.

Which of the following is not typically considered to be a "hot asset?"

In a limited partnership,all partners are protected from debts of the partnership.

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:

Which of the following distributions would never result in gain recognition to the recipient partner?

Which of the following statements is true regarding the sale of a partnership interest?

Which of the following statements correctly reflects the rules regarding proportionate liquidating distributions?

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.