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Exam 21: Partnerships

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Question 51

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Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations, they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership.She will also receive a 25% interest in future partnership profits.On July 1 of the current year, the unrestricted partnership capital interest (fair market value of $25,000) was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?

A) Nontaxable.
B) $25,000 ordinary income.
C) $25,000 short-term capital gain.
D) $25,000 long-term capital gain.
E) None of the above.

F) A) and B)
G) C) and D)

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Question 52

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

A) Whether to claim a tax credit or deduction for foreign taxes.
B) Whether to capitalize, amortize, or expense research and experimental costs.
C) The taxable year of the partnership.
D) The depreciation method used for partnership property.
E) All of the above elections are made by the partnership.

F) A) and E)
G) A) and B)

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Question 53

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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?

The BLM LLC's balance sheet on August 31 of the current year is as follows. The nonrecourse debt is shared equally among the LLC members.On that date, Lillie sells her one-third interest to Robyn for $170,000, including cash and relief of Lillie's share of the nonrecourse debt.Lillie's outside basis for her interest in the LLC is $50,000, including her share of the LLC's debt.How much capital gain and/or ordinary income will Lillie recognize on the sale?

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.She received a $10,000 cash distribution from the partnership during the year, and her share of partnership income is $15,000.If her share of partnership liabilities on the last day of the partnership year is $20,000, her outside basis for her partnership interest at the end of the year is $65,000.

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $58,000 cash and noninventory property (adjusted basis to the partnership of $10,000 and fair market value of $12,000) .The partnership has no hot assets.How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

PaulCo, DavidCo, and Sean form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions.PaulCo uses a January 31 fiscal year-end, while DavidCo and Sean use a November 30 and December 31 year-end, respectively.The partnership must use the least aggregate deferral method to determine its year end.

A partnership has accounts receivable with a basis of $0 and a fair market value of $20,000 and depreciation recapture potential of $30,000.All other assets of the partnership are either cash, capital assets, or § 1231 assets.If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner will be required to recognize ordinary income of $20,000.

Justin and Kevin formed the equal JK Partnership during the current year, with Justin contributing $60,000 in cash and Kevin contributing land (basis of $40,000, fair market value of $30,000) and equipment (basis of $0, fair market value of $30,000).Kevin recognizes a $20,000 gain on the contribution and his basis in his partnership interest is $60,000.

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.

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

Items that are not required to be passed through separately from a partnership to the partners include AMT adjustments and preferences and taxes paid to foreign countries.

Julie and Kate form an equal partnership during the current year.Julie contributes cash of $160,000, and Kate contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $100,000.As a result of these transactions, Kate has a basis in her partnership interest of $40,000.

Martha receives a proportionate nonliquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000, fair market value of $23,000) .How much gain or loss does Martha recognize, and what is her basis in the distributed property and in her partnership interest following the distribution?

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?

The BAM Partnership distributed the following assets to partner Barbie in a proportionate non-liquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $25,000, fair market value of $20,000).Barbie's basis in her partnership interest was $40,000 immediately before the distribution.Barbie will allocate a basis of $15,000 each to the two land parcels, and her basis in her partnership interest will be reduced to $0.

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Marcie is a 40% member of the M&A LLC.Her basis is $10,000 immediately before the LLC distributes to her $30,000 of cash and land (basis to the LLC of $20,000 and fair market value of $25,000).As a result of the proportionate, nonliquidating distribution, Marcie recognizes a gain of $20,000 and her basis in the land is $0.

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: How much will Meagan's adjusted gross income increase as a result of the above items?

Tim and Darby are equal partners in the TD Partnership.Partnership income for the year is $60,000.Tim needs cash in order to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion.If the partners agree, it is acceptable for TD to distribute $8,000 to Tim, and no cash or other property to Darby.