Exam 9: Partnership Formation and Operation

Jane contributes land with an FMV of $100,000 and a basis of $40,000 to the Green Partnership in exchange for a 25% partnership interest. The partnership assumes the $80,000 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?

Stan had a basis in his partnership interest at the beginning of last year of $30,000. There was no change in partnership liabilities during the year. His share of the partnership's ordinary loss last year was $40,000 and the partnership had no separately stated items. This year, Stan has a distributive share of ordinary income of $30,000. The taxable income from the partnership reported on Stan's personal income tax return this year (ignoring the at- risk and passive activity loss limitations) is

Janice has a 30% interest in the Jansen Partnership. She is to receive a guaranteed payment for deductible services of $50,000. The partnership reports $30,000 of ordinary income and a $100,000 long- term capital gain before deducting the guaranteed payment. What is her income from the partnership?

Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000. The land was subject to a $48,000 mortgage, which was assumed by STUV. No other liabilities existed at the time of contribution. What is Stella's basis in her partnership interest?

Tracy has a 25% profit interest and a 20% loss interest in the Dupont Partnership. The Dupont Partnership report following income and loss items for the current year: What is Tracy's distributive share?

Identify which of the following statements is true.

The WE Partnership reports the following items for its current tax year: What is the WE Partnership's ordinary income for the current year?

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?

Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.

Identify which of the following statements is true.

Dinia has agreed to provide services valued at $30,000 to the L- M Partnership. On January 1 of the current year, she is given a 20% capital and profits interest in the partnership in exchange for her services. The partnership has no liabilities at the time but has assets with a basis of $50,000 and an FMV of $70,000. What are the tax consequences to Dinia and the partnership?

Identify which of the following statements is true.

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Bob contributes cash of $40,000 and Carol contributes land with a basis of $25,000 and an FMV of $40,000 to become equal partners in the BC Partnership. The partnership immediately obtains a $30,000 mortgage on the land and the partners will share the economic risk of loss equally. What are the two partners' bases in the partnership after these transactions are completed?

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?

David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital, profits, and losses. The land is subject to a $30,000 recourse liability, which is assumed by the partnership. The partnership has other recourse liabilities of $18,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. David must recognize a

When the PDQ Partnership formed, it knew it had a good product, but it was a bit short on cash. After seeing the product, Jim, a CPA, said that he would set up an accounting system for the partnership in exchange for a 15% profits interest in the partnership. The partners agreed to this, as Jim was receiving only a profits interest and not a capital interest in the partnership. Jim's usual fee for this type of service would be approximately $5,000. What tax issues should Jim and the PDQ Partnership consider with respect to the payment made for the services?

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

Explain the tax consequences for both the service partner and the partnership when a contribution of services is made to the partnership.

Identify which of the following statements is true.