Exam 9: Partnership Formation and Operation

On the first day of the partnership's tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the nonrecourse liability. During the year, the partnership incurs a $120,000 loss and a $20,000 increase in liabilities. How much of the loss can Karen report on her tax return for the current year?

Identify which of the following statements is true.

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest. Yong had taken $10,000 of depreciation prior to the contribution. The partnership has no liabilities. As a result of the contribution, Yong must recognize

Which of the following is false?

Identify which of the following statements is true.

Identify which of the following statements is true.

Jerry has a 10% interest in the EKG Partnership capital, profits, and losses. He is a limited partner. At the beginning of the current year, his basis in his partnership interest is $10,000. The partnership earned $20,000 of ordinary income this year and repaid a $150,000 nonrecourse liability. What tax issues should Jerry consider with respect to reporting the results of this year's activities for the EKG Partnership on his personal return?

Guaranteed payments are always ordinary income to the recipient.

Mary and Martha, who had been friends for years, decided to open a retail store to sell kitchen and bath items. In June, they spent $500 looking for a suitable location. They paid an attorney $1,500 to have their partnership agreement drawn up, and they paid an accountant $400 to set up their accounting system. During July, they searched for vendors for the merchandise they planned to carry and stocked their shelves. The store opened in August and was immediately successful. They paid the accountant $300 to prepare an income statement for August. What tax issues should the partnership consider with regard to beginning this business?

Ali, a contractor, builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000. Which of the following statements is correct?

Formation of a partnership requires legal documentation filed with the Secretary of State.

The XYZ Partnership reports the following operating results for the current year: Tai has a 20% profits interest and a 25% loss interest in the XYZ Partnership. His distributive share of ordinary income is

Martin is a limited partner in a card shop. At the end of the partnership's tax year, Martin's basis in the partnership interest is $25,000 ($5,000 cash investment plus a $20,000 share of nonqualified nonrecourse financing). Martin's distributive share of partnership losses for the tax year is $33,000. Martin has $30,000 of passive income this year from other activities. How much of the $33,000 partnership loss can be used by Martin in the year of the loss?

Jeremey is a partner in the Jimmy partnership. Why does he need to know his basis in his partnership interest?

In January of this year, Arkeva, a calendar-year taxpayer, receives a $50,000 guaranteed payment from NFR Partnership. NFR deducted the payment during its tax year ending November 30 of last year. What tax year must Arkeva report her guaranteed payment in?

A partner's "distributive share" is the partner's share of any assets distributed by the partnership.

Electing large partnership rules differ from other partnership rules in all of the following areas except

Identify which of the following statements is true.

In computing the ordinary income of a partnership, a deduction is allowed for

What are the three rules and their order when determining a partnership tax year?