Exam 9: Partnership Formation and Operation

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

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

Identify which of the following statements is true.

Explain the difference between partnership distributions and distributive shares.

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?

Samantha works 40 hours a week as a clerk in the mall and earns $28,000. In addition, she works five hours each week in the XYZ Partnership's office. Samantha, a 15% limited partner in the XYZ Partnership, has been allocated a $4,000 loss from the partnership for the current year. The basis for her interest in XYZ before accounting for current operations is $7,000. What tax issues should Samantha consider with respect to her interest in, and employment by, the XYZ Partnership?

Identify which of the following statements is true.

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?

A partner's share of nonrecourse debt increases that partner's share of basis.

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

The Troika Partnership has an ordinary loss of $48,000 for the year. Before allocation of the loss at the end of the year, Shaad's one- third limited partnership interest has an adjusted basis of $5,000. Shaad's only other income or loss is his $30,000 salary from a factory job. What amount can Shaad deduct on his tax return as his share of the partnership's loss?

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

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

Meg and Abby are equal partners in the AM Partnership, which earns $40,000 ordinary income, $6,000 long- term capital gain (LTCG), and $2,000 Sec. 1231 loss during the current year. What is the amount and character of income that must be reported on Abby's tax return for this year's partnership operations?

Brent is a general 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?

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

Guaranteed payments are always ordinary income to the recipient.

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?

Jason, a lawyer, provided legal services for the employees of the ABC Partnership during the first six months of the current year. In exchange, he received a 2% capital and profits interest in the partnership. The value of the interest is $5,000. What are the tax consequences to Jason, the ABC Partnership, and the employees of ABC?

Identify which of the following statements is true.