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Exam 21: Partnerships

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Question 81

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Which of the following statements,if any,about an LLC is false?

A) An LLC is usually taxed like a partnership.
B) "Members" of an LLC generally have limited personal liability for debts of the LLC.
C) "Members" of an LLC can participate in management of the LLC unless the member agrees not to participate.
D) An LLC can specially allocate income items,as long as the substantial economic effect rules of § 704(b) are followed.
E) None of the above statements is false.

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

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Question 82

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Jackie owns a 40% interest in the capital and profits of the JAJ Partnership.Immediately before she receives a proportionate nonliquidating distribution from JAJ,the basis of her partnership interest is $40,000.The distribution consists of $20,000 in cash and land with a fair market value of $30,000.JAJ's adjusted basis in the land immediately before the distribution is $25,000.As a result of the distribution,Jackie recognizes no gain or loss and her basis in the land is $20,000.

A) True
B) False

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Question 83

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Marcie is a 40% member of the M&A LLC.Her basis is $40,000 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 $15,000 and her basis in the land equals its fair market value of $25,000.

Cardinal,LLC incurred $20,000 of startup expenses,$3,000 of organizational costs,and paid $10,000 in transfer taxes to change the title (ownership) of a building contributed by one of the LLC's members.Which of the following statements is correct regarding these three amounts?

Francine receives a proportionate liquidating distribution when the basis of her partnership interest is $20,000.The distribution consists of $25,000 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 Francine recognize,and what is her basis in the distributed property?

Cheryl and Nina formed a partnership.Cheryl received a 40% interest in partnership capital and profits in exchange for land with a basis of $60,000 and a fair market value of $80,000.Nina received a 60% interest in partnership capital and profits in exchange for $120,000 of cash.Three years after the contribution date,the land contributed by Cheryl is sold by the partnership to a third party for $90,000.How much taxable gain will Cheryl recognize from the sale?

Barry owns a 25% interest in a continuing partnership.The partnership distributes a $20,000 year-end cash bonus to all the partners.In a proportionate nonliquidating distribution,the partnership also distributed property (basis of $2,000;fair market value of $3,000) to Barry.Immediately before the distribution,Barry's basis in the partnership interest was $30,000.As a result of the distribution,Barry recognizes:

The MOG Partnership reports ordinary income of $60,000,long-term capital gain of $12,000,and tax-exempt income of $12,000.The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income.Their allocation of ordinary income will be reduced accordingly,and Olivia will be allocated a proportionately greater share of ordinary income.(In other words,each partner will receive allocations totaling 1/3 of the total $84,000 of partnership income. )This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.

Joe 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 $200,000.On that date,the partnership liquidates and makes a proportionate distribution of the following assets to Joe.

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,regardless of whether or not distributed.

Marcie is a 40% partner in the MAP Partnership.During the current tax year,the partnership reported ordinary income of $140,000 before payment of guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $10,000 to Marcie,and paid guaranteed payments to partners Marcie,Alice,and Pat of $20,000 each ($60,000 total) .How much will Marcie's adjusted gross income increase as a result of the above items?

Pat is a 40% member of the P&J LLC.Her basis is $30,000 immediately before the LLC distributes to her $40,000 of cash and land (basis to the partnership of $25,000 and fair market value of $50,000).As a result of the proportionate nonliquidating distribution,Pat recognizes a gain of $10,000 and her basis in the land is $0.

Michael contributes land with a value of $120,000 and a basis of $80,000 to the MNO Partnership in exchange for a 1/4 interest.Several months later,the partnership sells the land for $140,000.Of the gain on the land sale,$45,000 is allocated to Michael.

Which of the following is a correct definition of a concept related to partnership taxation?

In a proportionate liquidating distribution,Barbara receives a distribution of $40,000 cash,accounts receivable (basis of $0 and fair market value of $20,000) ,and land (basis of $20,000 and fair market value of $30,000) .In addition,the partnership repays all liabilities,of which Barbara's share was $40,000.Barbara's basis in the entity immediately before the distribution was $50,000.As a result of the distribution,what is Barbara's basis in the accounts receivable and land,and how much gain or loss does she recognize?

A partner has a profit-sharing percent,a loss-sharing percent,and a capital-sharing ownership percent.Depending on the provisions in the partnership agreement,these amounts may or may not be the same for a given partner.

At the beginning of the tax year,Wick'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,Wick will report: