Exam 10: Partnership Taxation

On July 1,2013,Ambrose was admitted to partnership in the firm of Ambrose and Nectar.His contribution to capital consisted of 500 shares of stock in Paniculata Corporation,which he bought in 1985 for $10,000 and which had a fair market value of $50,000 on July 1,2013.Ambrose's interest in the partnership's capital and profits is 25 percent.On July 1,2013,the fair market value of the partnership's net assets after Ambrose was admitted)was $200,000.What is Ambrose's taxable gain in 2013 on the exchange of stock for his partnership interest?

Mario and Luigi are brothers and they are equal partners in Pipes of Your Dreams Plumbing.Mario sells his fancy sports car to the business for $40,000.Mario's basis in the car is $45,000. a.What is the amount of Mario's recognized gain or loss on this transaction,and what is the nature of the gain or loss? b.If the partnership later sells the sports car for $55,000,how much of the gain is recognized?

For tax purposes,in computing the ordinary income of a partnership,a deduction is allowed for:

Cooke and Thatcher form the C&T Partnership.Cooke contributes equipment with a fair market value of $80,000 and a basis of $35,000,in exchange for an 80 percent interest in the partnership capital and profits.Thatcher performs services worth $20,000 for the partnership in exchange for a 20 percent interest in capital and profits. a.What is the amount of Cooke'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 Cooke's basis in his partnership interest immediately after the contribution? c.What is the amount of Thatcher's recognized income or loss if any)on the contribution to the partnership? d.What is Thatcher's basis in her partnership interest immediately after the contribution? e.What is C&T Partnership's basis in the equipment received from Cooke?

Guaranteed payments received from a partnership are included in the income of the partner receiving the payments on a cash basis,without regard to the partnership's tax year.

Limited liability companies may operate in more than one state.

A partner's interest in a partnership is decreased by:

Income from a partnership is taxed to the partner only if the partner receives the income as a distribution during the year.

Which of the following liabilities would be considered nonrecourse?

Kitty is a 60 percent partner of Tabby Associates.Kitty sells a building to the partnership for $75,000.If the building had an adjusted basis to Kitty of $95,000,how much gain or loss does Kitty recognize on this transaction?

Owen owns 60 percent of the Big Time partnership.He sells to the partnership a machine for $70,000 that has a $45,000 basis.What would the taxable income be for Owen and what is the partnership's basis in the machine?

At the beginning of the year,Joe's basis in his partnership interest was $5,000.During the year,Joe contributed $10,000 in cash to the partnership and signed a bank loan to be personally liable for the partnership's debt of $25,000.For the current year,the partnership allocated a loss of $60,000 to Joe.In the following year,Joe's portion of the partnership income is $30,000.Which of the following is accurate?

Barry owns a 50 percent interest in B&B Interests,a partnership.His brother,Benny,owns a 35 percent interest in that same partnership,and the remaining 15 percent is owned by an unrelated individual.During 2013,Barry sells a rental property with a basis of $60,000 to B&B Interests for $100,000.The partnership intends to hold the rental as inventory for resale.What is the amount and nature of Barry's gain or loss on this transaction?

Jack and Jill decided to pool their money and start a water delivery business.Since they trust each other so much,they did not draw up any legal documents for the business.During the first year of business,they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment.During the second year of business,they decided to limit their liability exposure by forming an LLP. a.Was a partnership formed during the first year? b.If a partnership was formed,how much income will the partnership pay tax on? c.For the second year,do they need to file a partnership tax return?

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

Cypress Road is a partnership with two partners,Saul,a 60 percent partner,and Robbie,a 40 percent partner.The partnership has income for the year of $100,000 before guaranteed payments to Robbie.Guaranteed payments of $50,000 are paid to Robbie for his management services during the year.Calculate the amount of income that should be reported by Saul and Robbie from the partnership for the year. Saul should report income of $ .Robbie should report income of $ .

Which one of the following is not true about partnerships?

In December of 2013,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 year-end is September 30,2014.For the month of December 2013,the partnership made $3,000 after Miss Havisham's guaranteed payment of $1,000.From January through September of 2014,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 2013? b.How much income should Miss Havisham report for 2014?

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?

Partnership losses that are not used because a partner's basis in the partnership interest is zero may not be carried forward and are lost by the partner.