Exam 9: Partnership Formation and Operation

When computing the partnership's ordinary income, a deduction is allowed for

A partner's basis for his partnership interest can be negative.

Identify which of the following statements is false.

On January 2 of the current year, Calloway and Taylor contribute cash equally to form the CT Partnership. Calloway and Taylor share profits and losses in a ratio of 75% and 25%, respectively. The partnership's ordinary income for the year was $40,000. Calloway received a distribution of $5,000 during the year. What is Calloway's share of taxable income for the year?

ABC Partnership distributes $12,000 to partner Al. Al's distributive share of partnership income is $20,000. Al is taxed on $20,000.

Jane contributes land with an FMV of $100,000 and a basis of $80,000 to the Green Partnership in exchange for a 25% partnership interest. The partnership assumes the $40,000 mortgage on the land. Mary has a 25% share of partnership liabilities. The Green Partnership has $8,000 in liabilities immediately before Jane's contribution. What is Jane's basis in her partnership interest?

Clark and Lewis are partners who share the profits and losses of the C&L Partnership 60% and 40%, respectively. The tax basis of each partner's interest in the partnership as of December 31 of last year was as follows: Clark, $14,000; Lewis, $12,000. During the current year, the partnership had ordinary income of $20,000 and a long-term capital loss of $10,000 from the sale of securities. The partnership made cash distributions proportionately to the two partners during this year totaling $20,000. What is the amount of Lewis's tax basis of his partnership interest on December 31 of the current year?

Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest. Mario had purchased the inventory on July 2 of last year. His holding period for the partnership interest begins

William and Irene each contributed $20,000 cash to the WI Partnership on January 1 of last year. William and Irene share profits and losses equally. Last year, the partnership reported tax-exempt interest income of $4,000. This year, each partner receives $1,000 of the tax-exempt interest income in a cash distribution. There are no partnership liabilities and no other income, loss, contributions, or distributions during both years. William's basis in the partnership interest following these transactions is

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

The WE Partnership reports the following items for its current tax year: Item Amount Income Operating income $90,000 Rental income 15,000 Interest income: Tax-exempt municipal bonds 2,000 Corporate bonds 4,000 Sec. 1231 gain 20,000 Sec. 1245 gain 18,000 Long-term capital gain 7,000 Expenses Rental expenses 12,000 Salaries paid to employees (not partners) 30,000 Charitable contributions 5,000 Interest paid related to borrowings used to finance municipal bonds 3,000 What is the WE Partnership's ordinary income for the current year?

Explain the three different limitation provisions that a partner must satisfy before a loss can be deducted.

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 $100,000 in ordinary income. What is Yee's distributive share and her guaranteed payment?

Doug purchases a 20% interest in the Quix Partnership for $10,000 on January 1, 2019, and begins to materially participate in the partnership's business. The Quix Partnership uses the calendar year as its tax year. At the time of the purchase, the Quix Partnership has $4,000 in liabilities, and Doug's share is 20%. What is Doug's basis in his partnership interest on January 1, 2010?

Identify which of the following statements is true.