Exam 9: Partnership Formation and Operation

Elijah contributes securities with a $90,000 FMV (purchased in 2008 at a cost of $50,000) to become a one-third partner in the EJK Partnership on January 1 of the current year. The securities are sold on December 15 of the current year for $105,000. How much of the partnership's capital gain from the sale of these securities should be allocated to Elijah?

On December 31 of last year, Alex and Jackson become equal partners in the AJ Partnership with assets having a tax basis and FMV of $120,000. The partnership, which deals in securities, had no liabilities at the end of last year. In January of this year, Franklin contributes his investment securities with an FMV of $60,000 (purchased two years ago at a cost of $45,000) to become an equal partner in the new AJF Partnership. The securities, which are inventory to the partnership, are sold on December 15 of the current year for $90,000. What amount and character of gain from the sale of these securities should be allocated to Franklin?

For a 30% interest in partnership capital, profits, and losses, Carol contributes a machine with a basis of $40,000 and an FMV of $80,000. The partnership assumes a $70,000 recourse liability on the machine. At the time of the contribution, the partnership had recourse liabilities of $10,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Following the contribution, Carol has

Yee manages Huang real estate, a partnership in which she is also a partner. She receives 40% of all partnership income before guaranteed payments, but no less than $80,000 per year. In the current year, the partnership reports $400,000 in ordinary income. What is Yee's distributive share and her guaranteed payment?

Identify which of the following statements is true.

Victor and Kristina decide to form VK Partnership. They will be equal partners. Victor contributes a building with a $150,000 FMV and a $105,000 adjusted basis to the partnership. The building has a $60,000 mortgage, which the partnership assumes. Kristina contributes land with a $70,000 FMV and a $95,000 adjusted basis. Kristina will manage the day-to-day activities of the partnership. She will begin to receive a guaranteed payment for her work, starting in the second year of operations, and continuing on as long as she manages the operations of the partnership. Victor and Kristina have agreed that the guaranteed payment will be $10,000 per year. What tax issues should Victor, Kristina, and the partnership consider with respect to the formation and operation of the partnership?

Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.

Brent is a limited partner in BC Partnership. His distributive share of partnership income and his guaranteed payment for the year are as follows: What is his self-employment income?

Identify which of the following statements is true.

Identify which of the following statements is true.

At the beginning of the current year, Terry has a $40,000 basis for his general partnership interest in the TKE Partnership. He materially participates in the business activities of the partnership. On November 1, he receives a $4,000 distribution. His distributive share of TKE's current items is a $5,000 net long-term capital gain and a $50,000 ordinary loss. What amount will he include in his current year's tax return?

The RT Limited Partnership incurs the following expenses during the time that the partnership is being organized: Attorneys' fees: For drawing up the partnership agreement $10,000 For advice on marketing the partnership interests on a stock exchange 14,000 Accountants' fees: For establishing the accounting system 6,000 For the first quarter's bookkeeping 600 What is the maximum amount that the partnership can deduct as an organization and syndication expense for the first year in which the partnership begins business, assuming the business began on October 1?

Explain the difference between partnership distributions and distributive shares.

Stan had a basis in his partnership interest at the beginning of last year of $30,000. There was no change in partnership liabilities during the year. His share of the partnership's ordinary loss last year was $40,000 and the partnership had no separately stated items. This year, Stan has a distributive share of ordinary income of $30,000. The taxable income from the partnership reported on Stan's personal income tax return this year (ignoring the at-risk and passive activity loss limitations) is

Identify which of the following statements is true.

Rashad contributes a machine having a basis of $30,000 and an FMV of $25,000 to a partnership in exchange for a 20% interest in partnership capital, profits, and losses. Prior to the contribution, the partnership had recourse liabilities of $20,000. The partnership assumes a $20,000 recourse liability that is owed by Rashad on the machine. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Rashad's basis in his partnership interest is

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Briefly explain the aggregate and entity theories as they relate to partnerships.

Identify which of the following statements is true.

Henry has a 30% interest in the HMS Partnership's capital, profits, and losses computed after taking into account his guaranteed payment of $40,000. In the current year, HMS reports ordinary income of $30,000 and capital gains of $60,000 before taking into account Henry's guaranteed payment. What is the amount and character of all income or loss that Henry must report as a result of partnership activities?