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Exam 21: Partnerships

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Question 61

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At the beginning of the tax year,Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.For the tax year,Zach will report:

A) A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.
B) An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.
C) A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
D) An ordinary loss of $44,000 and a nontaxable distribution of $20,000.

E) All of the above
F) A) and C)

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Question 62

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Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

A) Nonrecourse debt is allocated to the partners according to their loss-sharing ratios.
B) Recourse debt is allocated to the partners to the extent of the partnership's minimum gain in the property.
C) An increase in partnership debts results in a decrease in the partners' bases in the partnership interest.
D) A decrease in partnership debt is treated as a distribution from the partnership to the partner and reduces the partner's basis in the partnership interest.
E) Partnership debt is not reflected in the partners' bases in their partnership interests.

F) B) and D)
G) All of the above

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Question 63

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Aaron owns a 30% interest in a continuing partnership.The partnership distributes a $35,000 year-end cash bonus to all the partners.In a proportionate nonliquidating distribution,the partnership also distributed property (basis of $15,000; fair market value of $20,000) to Aaron.Immediately before the distribution,Aaron's basis in the partnership interest was $50,000.As a result of the distribution,Aaron recognizes:

An examination of the RB Partnership's tax books provides the following information for the current year: Barry is a 30% partner in partnership capital,profits,and losses.Assume the adjusted basis of his partnership interest is $50,000 at the beginning of the year,and he shares in 30% of the partnership liabilities for basis purposes.

Hardy's basis in his partnership interest was $5,000 at the beginning of the tax year.For the year,his share of the partnership's loss was $6,000,and he also received a distribution of $3,000.Hardy can deduct a $2,000 loss,and the remaining $4,000 loss is suspended until a year in which he has adequate basis.

Jamie contributed fully depreciated ($0 basis)property valued at $30,000 to the JKLM Partnership in exchange for a 40% interest in partnership capital and profits.During the first year of partnership operations,JKLM had net taxable income of $80,000 and tax-exempt income of $10,000.The partnership distributed $20,000 cash to Jamie.Her share of partnership recourse liabilities on the last day of the partnership year was $13,000.What is Jamie's adjusted basis (outside basis)for her partnership interest at the end of the tax year?

Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year.Her allocable share of LLC items are as follows: $20,000 of ordinary income,$2,000 tax-exempt interest income,and a $6,000 long-term capital gain.In addition,the LLC distributed $12,000 of cash to Emma during the year.Assuming the LLC had no liabilities at the beginning or the end of the year,Emma's ending basis in her LLC interest is $88,000.

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.Also,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.

Which of the following statements is true regarding accounting methods available to a partnership?

The MOP Partnership is involved in leasing heavy equipment under long-term leases of five years or more.Patricia has an adjusted basis for her partnership interest on January 1 of the current year of $600,000,consisting of the following:

In the current year,the CAR Partnership received revenues of $400,000 and paid the following amounts: $160,000 in rent,utilities,and salaries; a $40,000 guaranteed payment to partner Ryan; $20,000 to partner Amy for consulting services; and a $40,000 distribution to 25% partner Cameron.In addition,the partnership realized a $12,000 net long-term capital gain.Cameron's basis in his partnership interest was $60,000 at the beginning of the year,and included his $25,000 share of partnership liabilities.At the end of the year,his share of partnership liabilities was $15,000.

In a proportionate liquidating distribution,RST Partnership distributes to partner Riley cash of $30,000,accounts receivable (basis of $0 and fair market value of $40,000),and land (basis of $65,000 and fair market value of $50,000).Riley's basis was $40,000 before the distribution.On the liquidation,Riley recognizes a gain of $0,and her basis is $10,000 in the land and $0 in the accounts receivable.

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 must report a $10,000 ordinary loss from partnership operations,and the $50,000 guaranteed payment as ordinary income.

Nicholas is a 25% owner in the DDBN LLC (a calendar year entity) .At the end of the last tax year,Nicholas's basis in his interest was $50,000,including his $20,000 share of LLC liabilities.On July 1 of the current tax year,Nicholas sells his LLC interest to Anna for $80,000 cash.In addition,Anna assumes Nicholas's share of LLC liabilities,which,at that date,was $15,000.During the current tax year,DDBN's taxable income is $120,000 (earned evenly during the year) .Nicholas's share of the LLC's unrealized receivables is valued at $6,000 ($0 basis) .At the sale date,what is Nicholas's basis in his LLC interest,how much gain or loss must he recognize,and what is the character of the gain or loss?

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 30,2011 and 2012.The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30,2011 and 2012.How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31,2011?

On Form 1065,partners' capital accounts should be determined using the same method on Schedule L,Schedule M-2,and the Schedules K-1 prepared for the partners.

A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

Meagan is a 40% general partner in the calendar year,cash basis MKK Partnership.The partnership received $100,000 income from services and paid the following other amounts:

Jamie owns a 40% interest in the JSD LLC.In liquidation of the entity,Jamie receives a proportionate distribution of $20,000 cash,inventory (basis of $12,000 and fair market value of $14,000) ,and land (basis of $10,000 and fair market value of $30,000) .Jamie's basis in the entity immediately before the distribution was $50,000.As a result of the distribution,what is Jamie's basis in the inventory and land,and how much gain or loss does she recognize?

Tyler and Travis formed the equal T&T Partnership during the current year,with Tyler contributing $300,000 in cash and Travis contributing land (basis of $120,000,fair market value of $160,000)and inventory (basis of $30,000,fair market value of $140,000).Travis recognizes no gain or loss on the contribution and his basis in his partnership interest is $150,000.