Question 1

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec. 721 nontaxable treatment?

Accepted Answer

No. The service partner recogn

Question 2

Allen contributed land, which was being held for sale to Allen's customers, to a partnership in exchange for a 20% interest. The partnership uses the land in its business for three years and then sells the property. When the property was contributed, it had a basis in Allen's hands of $500,000 and an FMV of $600,000. The partnership sells the land for $700,000. The gain reported by the partnership is

Accepted Answer

A)  $100,000 of ordinary income and $100,000 of Sec. 1231 gain. 
B)  $100,000 of Sec. 1231 gain and $100,000 of capital gain. 
C)  $200,000 of ordinary income. 
D)  $200,000 of Sec. 1231 gain. 
A)  $100,000 of ordinary income and $100,000 of Sec. 1231 gain. 
B)  $100,000 of Sec. 1231 gain and $100,000 of capital gain. 
C)  $200,000 of ordinary income. 
D)  $200,000 of Sec. 1231 gain.

Question 3

The XYZ Partnership is held by ten partners who have the following capital and profits ownership of the partnership. The tax year-end used by each of the ten partners is also indicated. Assume each partner has used this year-end for at least five years.
   What is the required year-end for the XYZ Partnership, assuming that the business has no natural business year and has not filed a Sec. 444 election?

Accepted Answer

The partnership's required yea

Question 4

For a 20% interest in partnership capital, profits, and losses, Kasi contributes a machine having a basis of $30,000 and an FMV of $40,000. The partnership also assumes a $24,000 recourse liability secured by the machine. The partnership has $6,000 in recourse liabilities immediately preceding Kasi's contributions. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Kasi's basis in the partnership interest is

Accepted Answer

A)  $10,800. 
B)  $12,000. 
C)  $13,200. 
D)  $30,000. 
A)  $10,800. 
B)  $12,000. 
C)  $13,200. 
D)  $30,000.

Question 5

David purchased a 10% capital and profits interest in a partnership this year. He does not participate in the partnership's business. David has no passive income in the current year. His distributive share of the partnership's loss is $40,000 for this year. David's Sec. 705 basis in the partnership is $32,000 and his at-risk basis is $16,000 at the end of the current year. How much of the loss can David deduct on his tax return?

Accepted Answer

A)  $0 
B)  $16,000 
C)  $32,000 
D)  $40,000 
A)  $0 
B)  $16,000 
C)  $32,000 
D)  $40,000

Question 6

Bud has devoted his life to his business, the BK Partnership, in which he owns an 85% capital and profits interest. Because he has worked so hard all his life, he never married and has no children. He has decided to give a 25% capital and profits interest to Berry, a close friend, if Berry will work in the business for five years. Berry will receive guaranteed payments for his work. Bud devotes all his time to the partnership, but he takes no salary. What tax issues should Bud and Berry consider with respect to the gift of the partnership interest and Bud's employment arrangement with the partnership?

Accepted Answer

• Do the family partnership rules apply

Question 7

Nicholas, a 40% partner in Nedeau Partnership, gives one-half of his interest to his sister, Michelle. During the current year, Nicholas performs services for the partnership for which reasonable compensation is $80,000, but for which he accepts no pay. Nicholas and Michelle are each credited with a $100,000 distributive share, all of which is ordinary income. What are Nicholas' and Michelle's distributive share?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 8

Identify which of the following statements is true.

Accepted Answer

A)  Bob gives his 16-year-old daughter Michelle a 20% capital and profits interest in his accounting practice. She does no work for the partnership and is not involved at all with the operations of the partnership. In fact, she does not know that her dad transferred the interest in the partnership to her. If the partnership allocates an $8,000 distributive share of ordinary income to her, it is properly reported on Michelle's individual tax return. 
B)  Valid family partnership partners may be subject to the "kiddie tax." 
C)  Joan gives her daughter, Sarah, a 25% interest in a partnership that operates a steel mill. Sarah, age 19, was allocated $20,000 from the partnership as her share of the partnership ordinary income. The IRS will require the income to be included on Sarah's return. 
D)  All of the above are false. 
A)  Bob gives his 16-year-old daughter Michelle a 20% capital and profits interest in his accounting practice. She does no work for the partnership and is not involved at all with the operations of the partnership. In fact, she does not know that her dad transferred the interest in the partnership to her. If the partnership allocates an $8,000 distributive share of ordinary income to her, it is properly reported on Michelle's individual tax return. 
B)  Valid family partnership partners may be subject to the "kiddie tax." 
C)  Joan gives her daughter, Sarah, a 25% interest in a partnership that operates a steel mill. Sarah, age 19, was allocated $20,000 from the partnership as her share of the partnership ordinary income. The IRS will require the income to be included on Sarah's return. 
D)  All of the above are false.

Question 9

Identify which of the following statements is true.

Accepted Answer

A)  A partnership cannot have an NOL carryback or carryforward. 
B)  A partnership cannot make charitable contributions. 
C)  Dividends received by a partnership from a domestic corporation are included in the partnership's ordinary income. 
D)  All of the above are false. 
A)  A partnership cannot have an NOL carryback or carryforward. 
B)  A partnership cannot make charitable contributions. 
C)  Dividends received by a partnership from a domestic corporation are included in the partnership's ordinary income. 
D)  All of the above are false.

Question 10

Identify which of the following statements is true.

Accepted Answer

A)  Distribution of partnership income in the form of cash to partners is generally tax-free to the partners and the partnership. 
B)  When partners receive cash distributions from the partnership, they pay taxes on those distributions. 
C)  If money distributions exceed the partner's basis in the partnership interest, the partner would have to recognize gain on the distribution from the partnership. Such gain is usually an ordinary gain. 
D)  All of the above are true. 
A)  Distribution of partnership income in the form of cash to partners is generally tax-free to the partners and the partnership. 
B)  When partners receive cash distributions from the partnership, they pay taxes on those distributions. 
C)  If money distributions exceed the partner's basis in the partnership interest, the partner would have to recognize gain on the distribution from the partnership. Such gain is usually an ordinary gain. 
D)  All of the above are true.

Question 11

Dan purchases a 25% interest in the Haymarket Partnership for $20,000 on January 1, and begins to materially participate in the partnership's business. The Haymarket Partnership uses the calendar year as its tax year. At the time of the purchase, the Haymarket Partnership has $2,000 in liabilities, and Dan's share is 25%. During the year, the Haymarket Partnership incurs $8,000 in losses and its liabilities increase by $4,000. What is Dan's basis in his partnership interest on December 31?

Accepted Answer

Purchase of partnership interest $20,000

Question 12

George receives a 10% limited partnership interest (capital and profits interest) in the HIJ Partnership in return for managing the partnership's rental property. The partnership interest has an FMV of $35,000. What is the amount and character of the income (if any) that George must report as a result of becoming a partner?

Accepted Answer

George recognizes $35,000 of o

Question 13

Identify which of the following statements is true.

Accepted Answer

A)  Tax-exempt interest received by a partnership is taxable to the partners if distributed. 
B)  Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items. 
C)  The amount and character of any gains/losses are determined at the partnership level. 
D)  All of the above are false. 
A)  Tax-exempt interest received by a partnership is taxable to the partners if distributed. 
B)  Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items. 
C)  The amount and character of any gains/losses are determined at the partnership level. 
D)  All of the above are false.

Question 14

On December 1, Antonio, a member of a three-person partnership, purchases investment securities from the partnership for their $37,000 FMV. All partners share profits and losses equally. The securities were acquired by the partnership for $25,000 cash in March of the current year. What amount and character of gain will Antonio recognize because of this transaction?

Accepted Answer

A)  $0 gain 
B)  $4,000 ordinary income 
C)  $4,000 short-term capital gain 
D)  $12,000 ordinary income 
A)  $0 gain 
B)  $4,000 ordinary income 
C)  $4,000 short-term capital gain 
D)  $12,000 ordinary income

Question 15

A partnership has one general partner, Allen, who materially participates in the business. Allen had a $30,000 distributive share of ordinary losses for this year and the partnership had no separately stated gains or losses. There are no changes in liabilities during this year and there are no additional contributions or distributions. At the beginning of this year, the Sec. 705 basis was $40,000 and the at-risk basis was $15,000. The basis on December 31 of this year based on the above information is

Accepted Answer

A)  $10,000. 
B)  $15,000. 
C)  $25,000. 
D)  $40,000. 
A)  $10,000. 
B)  $15,000. 
C)  $25,000. 
D)  $40,000.

Question 16

The partners of the MCL Partnership, Martin, Clark, and Lewis, share profits and losses in a ratio of 4:3:3, respectively. The tax basis of each partner, as of December 31 of the current year, is as follows: Martin, $7,200; Clark, $6,000; and Lewis, $2,500. During the current year, the partnership incurred an ordinary loss of $15,000. The loss is not reflected in the tax basis figures presented above. Nothing else occurs during the year that would affect the partners' bases. As a result of this loss, what amount should Martin, Clark, and Lewis report on their individual tax returns for the current year? What limitations (other than the Sec. 704(d) loss limitations) may prevent them from deducting their losses in the current year?

Accepted Answer

The loss allocation is:
Martin: $15,000

Question 17

Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits. Two weeks later, Karl sells the profits interest for $30,000. In this tax year, Karl must recognize

Accepted Answer

A)  no gain or loss. 
B)  a $30,000 short-term capital gain. 
C)  a $30,000 ordinary income. 
D)  a $30,000 Sec. 1231 gain. 
A)  no gain or loss. 
B)  a $30,000 short-term capital gain. 
C)  a $30,000 ordinary income. 
D)  a $30,000 Sec. 1231 gain.

Question 18

Edward owns a 70% interest in the capital, profits, and losses of the Edward and Moore Partnership. During the year, Edward purchases surplus inventory from the partnership for $5,000. On the date of the sale, the inventory has an adjusted basis to the partnership of $8,000. For the year, the partnership's ordinary income is $50,000 after including the loss on the sale of the inventory to Edward. Assuming that there are no other partnership items to be separately stated, what is Edward's distributive share of the partnership's ordinary income for the year?

Accepted Answer

The loss will not be recognized by the p

Question 19

Kay and Larry each contribute property to become equal partners in the KL General Partnership. Kay contributes office furniture with an adjusted basis of $40,000 and an FMV of $50,000, which she has depreciated using MACRS. Larry contributes land with a basis of $60,000 and an FMV of $50,000, which he had been holding as an investment. The partnership will use the land as a parking lot for their business.
a) What is the partnership's basis in each of the two pieces of property?
b) If the land that Larry contributed is sold four years after the contribution for $45,000, what is the amount and character of the gain or loss which Larry should report?

Accepted Answer

a) The partnership basis for the two ass

Question 20

Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest. He had purchased the asset on March 1, 2002. His holding period for the partnership interest begins

Accepted Answer

A)  March 1, 2002. 
B)  March 2, 2002. 
C)  June 1 of the current year. 
D)  June 2 of the current year. 
A)  March 1, 2002. 
B)  March 2, 2002. 
C)  June 1 of the current year. 
D)  June 2 of the current year.

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec. 721 nontaxable treatment?

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits. Two weeks later, Karl sells the profits interest for $30,000. In this tax year, Karl must recognize

Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest. He had purchased the asset on March 1, 2002. His holding period for the partnership interest begins

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

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Exam 9: Partnership Formation and Operation

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec. 721 nontaxable treatment?

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits. Two weeks later, Karl sells the profits interest for $30,000. In this tax year, Karl must recognize

Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest. He had purchased the asset on March 1, 2002. His holding period for the partnership interest begins

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

Filters