Exam 10: Partnership Taxation

In December of 2015, Miss Havisham and Pip form a wedding planning business. Each of them own 50 percent of the partnership. The partnership establishes a September 30th year-end since most weddings are during the summer. Therefore, the partnership's initial year-end is September 30, 2016. For the month of December 2015, the partnership made $3,000 after Miss Havisham's guaranteed payment of $1,000. From January through September of 2016, the partnership made a net income of $65,000 after a $1,500 per month guaranteed payment to Miss Havisham. ​ a.How much income should Miss Havisham report for 2015? b.How much income should Miss Havisham report for 2016?

Which of the following statements is true about partnerships?

Ownership of a partnership interest by a taxpayer's brother is considered indirect ownership by the taxpayer.

Loretta contributes property to a partnership in exchange for a 25 percent partnership interest. The property contributed has a fair market value of $45,000 and a basis of $35,000 on the date of the contribution to the partnership. In addition, Loretta receives a 10 percent partnership interest, valued at $18,000, in exchange for services rendered to the partnership. What is Loretta's basis in her partnership interest, immediately after these transactions?

The partnership of Felix and Oscar had the following items of income during the current tax year: What is the total ordinary income from business activities passed through by the partnership for the current tax year?

Limited liability companies may operate in more than one state.

During the current year, Jay is a partner in an automobile dealership. Jay's amount at risk at the beginning of the year is $90,000, and during the current year Jay's share of the dealership's ordinary loss is $120,000. a.What is the amount of the loss from the automobile dealership that Jay may deduct in the current year? b.If the dealership has a profit of $63,000 in the subsequent year, how much of the subsequent year income is taxable to Jay?

Jennifer has a 25 percent interest in the Aspen Aircraft partnership. Her basis in her partnership interest is $10,000 at the beginning of 2015. The partnership reported the following activity for 2015: What is Jennifer's basis in her partnership interest at the end of 2015?

Which one of the following is not true about partnerships and their income-reporting process?

Rochelle owns 40 percent of a partnership and her brother owns the remaining 60 percent interest. During the current tax year, Rochelle sold a building to the partnership for $180,000, to be used for the partnership's office. She had held the building for 3 years at the time of the sale. a.Assuming Rochelle's basis in the building was $200,000, what is the amount and nature of her gain or loss? b.Assuming Rochelle's basis in the building was $150,000, what is the amount and nature of her gain or loss?

Losses on transactions between a partnership and its partners are always disallowed.

A partnership may not show a loss as a result of deducting guaranteed payments made to the partners.

Oscar and Frank form an equal partnership, the O and F Partnership. Oscar contributes land with an adjusted basis of $45,000, subject to a mortgage of $100,000, in exchange for a partnership interest worth $250,000. Frank contributes cash of $100,000 and performs services for the partnership in exchange for a partnership interest worth $250,000. a.What is the amount of Oscar's recognized gain or loss (if any) as a result of the contribution to the partnership in exchange for the partnership interest? b.What is Oscar's basis in his partnership interest immediately after the contribution? c.What is the amount of Frank's recognized income or loss (if any) as a result of the receipt of the partnership interest in exchange for the cash and services? d.What is the partnership's basis in the land received from Oscar?

The "at-risk" rule acts to prevent tax shelters from generating large losses for their investors while exposing them to little personal risk.

The "at-risk" rule does not apply to activities involving real estate.

During the current year, Norman contributed investment property held for over one year to the Mary Ann Partnership for a 40 percent interest in partnership capital and profits. His tax basis in the property contributed was $8,000, and the property had a fair market value of $10,000 on the date of the contribution to the partnership. What gain or loss should Norman report as a result of the contribution of the property to the partnership in exchange for the 40 percent partnership interest?

Under which of the following circumstances would a partnership terminate and close its tax year?

A distribution of cash to a partner was greater than his basis in the partnership. How would this distribution be treated by the partner, assuming the distribution is not a liquidating distribution?

Nash and Ford are partners who share profits and losses equally. For the current tax year, the partnership had book income of $70,000 which included the following deductions: What amount should be reported as ordinary income on the partnership return for the current tax year? ​

A partnership will terminate and its tax year will close if the partnership ceases to carry on any business activity.