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Exam 21: Partnerships

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Question 1

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The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership also liquidated: $25,000 cash,land parcel A (basis of $5,000,fair market value of $30,000) and land parcel B (basis of $5,000,fair market value of $15,000).James's basis in his partnership interest was $85,000 immediately before the distribution.James will allocate bases of $40,000 to parcel A and $20,000 to parcel B,and he will have no remaining basis in his partnership interest.

A) True
B) False

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Question 2

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TEC Partners was formed during the current tax year.It incurred $10,000 of organizational expenses,$80,000 of startup expenses,and $5,000 of transfer taxes to retitle property contributed by a partner.The property had been held as MACRS property for ten years by the contributing partner,and had an adjusted basis to the partner of $300,000 and fair market value of $400,000.Which of the following statements is correct regarding these items?

A) TEC treats the contributed property as a new MACRS asset placed in service on the date the property title is transferred.
B) TEC must amortize the $10,000 of organizational expenses over 180 months.
C) TEC's deducts the first $5,000 of startup expenses and amortizes the remainder over 180 months.
D) TEC must capitalize the transfer tax and treat it as a new asset placed in service on the date the property is contributed.
E) None of the above statements are true.

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

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Question 3

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

In a proportionate liquidating distribution,Ashleigh receives a distribution of $30,000 cash,accounts receivable (basis of $0,fair market value of $40,000) ,and land (basis of $40,000,fair market value of $50,000) .In addition,the partnership repays all liabilities,of which Ashleigh's share was $70,000.Ashleigh's basis in the entity immediately before the distribution was $60,000.As a result of the distribution,what is Ashleigh's basis in the accounts receivable and land,and how much gain or loss does she recognize?

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. -Carryover

The BLM LLC's balance sheet on August 31 of the current year is as follows. Adjusted Basis FMV Cash $ 60,000 $ 60,000 Receivables -0- 150,000 Capital assets 90,000 300,000 $150,000 $510,000 Nonrecourse debt $ 90,000 $ 90,000 Barney,capital 20,000 140,000 Lillie,capital 20,000 140,000 Marshall,capital 20,000 140,000 $150,000 $510,000 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?

The MOP Partnership is involved in construction activities.Patricia has an adjusted basis for her partnership interest on January 1 of the current year of $600,000,consisting of the following: Capital account $350,000 Share of partnership recourse debt 50,000 Share of partnership nonrecourse debt 200,000 $600,000 ​ During the year,the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patricia.Partnership liabilities were the same at the end of the tax year,and the nonrecourse debt is not "qualified nonrecourse debt." If she owns a 60% share of partnership profits,capital,and losses,and is an active ("material") participant in the partnership,how much of her share of the operating loss can Patricia deduct? What Code provisions could cause a suspension of the loss? How would your answer change if MOP were an LLC and Patricia had not personally guaranteed any of the debt?

The BAM Partnership distributed the following assets to partner Barbie in a proportionate nonliquidating 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 $30,000).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.

On a partnership's Form 1065,which of the following statements is not true?

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. -Schedules M-1 or M-3

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.

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.

Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries,as AMT and the foreign tax credit are calculated by the partnership.

Kristie is a 30% partner in the KKM Partnership.During the current year,KKM reported gross receipts of $280,000 and a charitable contribution of $30,000.The partnership paid office expenses of $80,000.In addition,KKM distributed $20,000 each to partners Kaylyn and Megan,and the partnership paid partner Kaylyn $20,000 for administrative services.Kristie reports the following income from KKM during the current tax year:

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.

Lori,a partner in the JKL partnership,received a proportionate nonliquidating distribution of $10,000 cash,unrealized receivables with a basis of $0 and a fair market value of $15,000,and land with a basis of $6,000 and a fair market value of $10,000.Her basis in the partnership interest immediately before the distributions was $14,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $4,000,respectively.

Scott owns a 30% interest in the capital and profits of the SOS Partnership.Immediately before he receives a proportionate nonliquidating distribution from SOS,the basis of his partnership interest is $40,000.The distribution consists of $30,000 in cash and land with a fair market value of $80,000.SOS's adjusted basis in the land immediately before the distribution is $50,000.As a result of the distribution,Scott recognizes no gain or loss and his basis in the land is $10,000.

Molly is a 30% partner in the MAP Partnership.During the current tax year,the partnership reported ordinary income of $200,000 before payment of guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $20,000 to Molly,and paid guaranteed payments to partners Molly,Amber,and Pat of $20,000 each ($60,000 total guaranteed payments) .How much will Molly's adjusted gross income increase as a result of the above items?

Carli contributes land to the newly formed CD Partnership in exchange for a 30% interest.The land has an adjusted basis and fair market value of $300,000 and is subject to a liability of $100,000,which the partnership assumes.None of this liability is repaid at year-end.At the end of the year,the partnership has trade accounts payable of $20,000.Assume all liabilities are allocated proportionately to the partners.Total partnership income for the year is $400,000.What is Carli's basis in her partnership interest at the end of the year?

Ryan is a 25% partner in the ROCC Partnership.At the beginning of the tax year,Ryan's basis in the partnership interest was $90,000,including his share of partnership liabilities.During the current year,ROCC reported net ordinary income of $100,000.In addition,ROCC distributed $10,000 to each of the partners ($40,000 total) .At the end of the year,Ryan's share of partnership liabilities increased by $10,000.Ryan's basis in the partnership interest at the end of the year is: