Exam 9: Partnership Formation and Operation

At the formation of the BD Partnership, Betty contributes land with a basis of $10,000 and an FMV of $30,000 and Dick contributes cash of $30,000. Betty and Dick share profits and losses equally. When the land is sold two years later for $50,000, Betty must recognize a gain of

Identify which of the following statements is true.

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

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?

Charles Jordan files his income tax return on a calendar- year basis. He is a principal partner in a partnership using a tax year ending June 30. Jordan's share of the partnership's ordinary income was $24,000 for the fiscal year ending June 30 of last year and $72,000 for the fiscal year ending June 30 of the current year. Assume the partnership earned its income evenly throughout the year. How much should Jordan report on his Form 1040 for last year as his share of the partnership's ordinary income?

In January, Daryl and Louis form a partnership with each contributing $75,000 in cash. The partnership agreement provides that Daryl would receive a guaranteed payment for salary of $20,000 and that partnership profits and losses (computed after deducting Daryl's salary) would be shared equally. For the year, the partnership's operations result in an $18,000 ordinary loss after payment of Daryl's guaranteed payment. The partnership has no outstanding liabilities at year- end. What is the basis amount of Daryl's partnership interest at year- end?

Mike and Jennifer form an equal partnership. Mike contributes cash of $15,000 and Jennifer contributes land having a $15,000 FMV and a basis of $5,000. If the partnership sells the land three years later for $18,000, what are the tax consequences to Mike and Jennifer?

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

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?

Latoya owns a 10% interest in the ABC Partnership from January 1 through June 30 (the 181st day of the tax year) of the current year (a non- leap year). On July 1, Latoya buys an additional 10% interest in the partnership. The XYZ Partnership's ordinary income is $109,500 and it is earned evenly throughout the year. Latoya's distributive share of the ordinary income is

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. Partner Orvnership Partner's Tax Year- End 8\% 12/31 8\% 6/30 8\% 9/30 10\% 6/30 10\% 6/30 10\% 10/31 10\% 9/30 12\% 12/31 12\% 6/30 12\% 6/30 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?

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?

Limited partners must consider the at- risk, basis, and passive loss limitations when determining the amount of their deductible loss.

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?

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

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?

Sarah purchased land for investment in 2008 for $80,000. In 2009 when the FMV of the land was only $70,000, she contributed it to the SL Partnership, which is in the business of developing and selling lots. SL Partnership developed the contributed land and sold it in 2010 for $50,000. What is the amount and character of the gain or loss?

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

The WE Partnership reports the following items for its current tax year: Item Amount Income Operating income \9 0,000 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?

George pays $10,000 for a 20% interest in a general partnership, which has recourse liabilities of $20,000. The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. George's basis in his partnership interest is