Exam 15: Forming and Operating Partnerships

Ruby's tax basis in her partnership interest at the beginning of the partnership's tax year was $13,000.The following items were included in her Schedule K-1 from the partnership for the year: $\begin{array}{llcc} \text { Cash Distribution } & \$2,000 \\ \text {Ordinary Business Loss } &\$(14,000)\\ \text { Short-Term Capital Gairs } &\$2,000\\ \text {Reduction in Ruby's Share of Partreeship Debt } &\$4,000\\\end{array}$ Determine what amounts related to these items Ruby will report on her tax return assuming her tax basis and at-risk amount are equal and that she is a material participant in the partnership's activities.

The character of each separately stated item is determined at the partner level.

What is the rationale for the specific rules partnerships must follow in determining a partnership's taxable year-end?

Sue and Andrew form SA general partnership.Each person receives an equal interest in the newly created partnership.Sue contributes $10,000 of cash and land with an FMV of $55,000.Her basis in the land is $20,000.Andrew contributes equipment with an FMV of $12,000 and a building with an FMV of $33,000.His basis in the equipment is $8,000, and his basis in the building is $20,000.How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

KBL, Inc., AGW, Inc., Blaster, Inc., Shiny Shoes, Inc., and a group of 24 individuals form Shoes Galore General Partnership on October 11, 20X9.Now, Shoes Galore must adopt its required tax year-end.The partners' year-ends, profits interests, and capital interests are reflected in the table below.Given this information, what tax year-end must Shoes Galore use, and what rule requires this year-end? Shoes Galore General Partrership Year-End Profits Capital KBL, Inc 1/31 25\% 25\% AGW, Inc. 1/31 20\% 20\% Blaster, Inc 3/31 4\% 4\% Shiry Shoes, Inc. 6/30 3\% 3\% 24 Individuals 12/31 2\% each (48\% total) 2\% each (48\% total)

Which of the following items is subject to the net investment income tax when a partner is not a material participant in the partnership?

If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

Which of the following statements regarding capital and profits interests received for services contributed to a partnership is false?

Partners adjust their outside basis by adding nondeductible expenses and subtracting any tax-exempt income to avoid being double taxed.

How does a partnership make a tax election for the current year?

On January 1, 20X9, Mr.Blue and Mr.Grey each contributed $100,000 to form the B&G General Partnership.Their partnership agreement states that they will each receive a 50 percent profits and loss interest.The partnership agreement also provides that Mr.Blue will receive an annual $36,000 guaranteed payment.B&G began business on January 1, 20X9.For its first taxable year, its accounting records contained the following information: Gross receipts fromt sales Cost of sales Gross profit Guarariteed paynents to Mr. Blue Interest paid on business debt Dividend income Tax-exerrpt interest Operating experises Depreciation expense Section 1231 gairs \ 150,000 \ (220,000 \ (70,000 \ (36,000 \ (3,000 \ 500 \ 1,500 \ (138,000 \ (9,000 \ 8,000 The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30, 20X9.B&G repaid $10,000 of the loan on December 15, 20X9.Neither of the partners received a cash distribution from B&G in 20X9. Complete the following table related to Mr.Blue's interest in B&G partnership: Item Amount Mr. Blue's ordinary business income (loss) allocation for 20 X 9 Mr. Blue's self-ernployment earnings (loss) for 20X9 Mr. Blue's tax basis in his B\&G interest on Deceunber 31,20X9

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss)and are also treated as separately stated items.

Hilary had an outside basis in LTL General Partnership of $10,000 at the beginning of the year.LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000, a $10,000 reduction in Hilary's share of partnership debt, a cash distribution of $20,000, and tax-exempt income of $3,000.What is Hilary's adjusted basis at the end of the year?

A partnership with a C corporation partner must always use the accrual method as its accounting method.

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Lloyd and Harry, equal partners, form the Ant World Partnership.During the year, Ant World had the following revenue, expenses, gains, losses, and distributions: Cost of Goods sold \8 5,000 Cash Distribution to Harry \1 5,000 Municipal Bond Interest \1 ,500 S hort-TermCapitalGains \4 ,500 Employee Wages \1 40,000 Rent \1 0,000 Charitable Contributions \2 5,000 Sales \1 75,000 Repairs and Maintenance \5 ,000 Long-Term Capital Gains \1 2,000 Fines and Penalties \5 ,000 Guaranteed Payment to Lloyd 25,000 Given these items, what amount of ordinary business income (loss)and what separately stated items should be allocated to each partner for the year?

On January 1, X9, Gerald received his 50 percent profits and capital interest in High Air, LLC, in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage.High Air reported a $15,000 loss for its X9 calendar year.How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation?

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

Partnerships may maintain their capital accounts according to which of the following rules?

Which of the following statements regarding a partner's basis adjustments is true?