Exam 10: Partnership Taxation

In December of 2019, Ms. Havisham and Pip form a wedding planning business. They each own 50 percent of the partnership. The partnership establishes a September 30th year-end since most weddings are during the summer. Therefore, the partnership's initial year-end is September 30, 2020. For the month of December 2019, the partnership made a net income of $3,000 after Ms. Havisham's guaranteed payment of $1,000. From January through September of 2020, the partnership made a net income of $65,000 after a $1,500 per month guaranteed payment to Ms. Havisham. ​ a. How much income should Ms. Havisham report for 2019? b. How much income should Ms. Havisham report for 2020?

Jennifer has a 25 percent interest in the Aspen Aircraft partnership. Her basis in her partnership interest is $10,000 at the beginning of the year. The partnership reported the following activity for the year: Ordinary income \ 40,000 Section 1231 gain \ 10,000 Charitable contribution \ 12,000 Total distributions to partners \ 28,000 What is Jennifer's basis in her partnership interest at the end of the year?

During the current year, Norman contributed investment property held for over one year to the Mary Ann Partnership for a 40 percent interest in partnership capital and profits. His tax basis in the property contributed was $8,000, and the property had a fair market value of $10,000 on the date of the contribution to the partnership. What gain or loss should Norman report as a result of the contribution of the property to the partnership in exchange for the 40 percent partnership interest?

A partner's interest in a partnership is decreased by:

Losses on transactions between a partnership and its partners are always disallowed.

The "at-risk" rule acts to prevent tax shelters from generating large losses for their investors while exposing them to little personal risk.

Mario and Luigi are brothers and they are equal partners in Pipes of Your Dreams Plumbing. Mario sells his fancy sports car to the business for $40,000. Mario's basis in the car is $45,000. a. What is the amount of Mario's recognized gain or loss on this transaction, and what is the nature of the gain or loss? b. If the partnership later sells the sports car for $55,000, how much of the gain is recognized?

A partnership must separately report Section 1231 gains and losses rather than including them in ordinary taxable income.

An equal partnership is formed by Rita and Gerry. Rita contributes cash of $10,000 and a building with a fair market value of $150,000, adjusted basis of $55,000 and subject to a liability of $60,000. Gerry contributes cash of $100,000. What is the partnership's basis in the building contributed by Rita?

A distribution of cash to a partner was greater than his basis in the partnership. How would this distribution be treated by the partner, assuming the distribution is not a liquidating distribution?

Which of the following is true about an LLC (Limited Liability Company)?

At the beginning of the year, Joe's basis in his partnership interest was $5,000. During the year, Joe contributed $10,000 in cash to the partnership and signed a bank loan to be personally liable for the partnership's debt of $25,000. For the current year, the partnership allocated a loss of $60,000 to Joe. In the following year, Joe's portion of the partnership income is $30,000. Which of the following is accurate?

A partnership may not show a loss as a result of deducting guaranteed payments made to the partners.

Debbie and Betty operate the D & B partnership. Betty, a 50 percent partner, receives a guaranteed payment of $10,000 for her services in operating the partnership. The partnership has income before the guaranteed payment of $5,000. What is the taxable income Debbie and Betty must each report from the partnership for the year? Debbie should report income of $__________. Betty should report income of $__________.

Because a partnership does not pay taxes, a partnership is not recognized as a legal entity under civil law.

Which one of the following is not true about partnerships and their income-reporting process?

A partnership may deduct a single personal exemption in calculating ordinary taxable income or loss.

Losses are disallowed for transactions between a partnership and a partner who has a 50 percent interest in the partnership.

Nash and Ford are partners who share profits and losses equally. For the current tax year, the partnership had book income of $70,000 which included the following deductions: Guaranteed payments to partners: Nash \ 35,000 Ford 25,000 Charitable contributions 5,000 What amount should be reported as ordinary income on the partnership return for the current tax year?