Exam 21: Partnerships

The BAM Partnership distributed the following assets to partner Barbie in a proportionate nonliquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $10,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $10,000 and $20,000, respectively, to the two land parcels, and her basis in her partnership interest will be reduced to $0.

Allison is a 40% partner in the BAM Partnership. At the beginning of the tax year, her basis in the partnership interest was $100,000, including her share of partnership liabilities. During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners). In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee. At the end of the year, Allison's share of partnership liabilities decreased by $10,000. Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:

In a proportionate current (nonliquidating) distribution of cash and a capital asset, the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Sharon and Sue are equal partners in the S&S Partnership. On January 1 of the current year, each partner's adjusted basis in S&S was $80,000 (including each partner's $20,000 share of the partnership's $40,000 of liabilities). During the current year, S&S repaid $30,000 of the debt and borrowed $20,000 for which Sharon and Sue are equally liable. In the current year ended December 31, S&S also sustained a net operating loss of $40,000 and earned $10,000 of interest income from investments. If liabilities are shared equally by the partners, on January 1 of the next year, how much is each partner's basis in her interest in S&S?

Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Moreover, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

Match each of the following statements with the numbered terms below that provide the best definition. -Publicly traded partnership

Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate current (nonliquidating) distribution consisting of land held for investment with a basis to CAR of $40,000 (value of $60,000), and inventory with a basis of $40,000 (value of $40,000). After the distribution, Catherine's bases in the land and inventory are:

Ryan is a 25% partner in the ROCC Partnership. At the beginning of the tax year, his basis in the partnership interest was $90,000, including his share of partnership liabilities. During the current year, ROCC reported net ordinary income of $100,000. In addition, ROCC distributed $10,000 to each of the partners ($40,000 total). At the end of the year, Ryan's share of partnership liabilities increased by $10,000. His basis in the partnership interest at the end of the year is:

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of taxable income. This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

In a limited liability partnership, all members may participate in management and have personal liability for entity debts except for malpractice committed by the other partners.

In a proportionate liquidating distribution in which the partnership is liquidated, Bill received cash of $120,000, inventory (basis of $6,000, fair market value of $8,000), and a capital asset (basis and fair market value of $16,000). Immediately before the distribution, Bill's basis in the partnership interest was $90,000. a. How much gain or loss will Bill recognize on the distribution? b. What is Bill's basis in the inventory and the capital asset?

Debt of a limited liability company is allocated among its members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

Match each of the following statements with the terms below that provide the best definition. -Schedule K-1

DDP Partnership reported gross income from operations of $125,000, a long-term capital gain of $5,000, a short-term capital loss of $2,000, and a charitable contribution of $5,000. On its Schedule K, the partnership reports ordinary business income of $120,000, a long-term capital gain of $5,000, and a short-term capital loss of $2,000.

Randy owns a one-fourth capital and profits interest in the calendar year RUSR Partnership. His adjusted basis for his partnership interest was $200,000 when he received a proportionate nonliquidating distribution of the following assets. Partnership's Basis in Asset Asset's Fair Market Value Cash Inventory $120,000 60,000 $120,000 90,000 a. Calculate Randy's recognized gain or loss on the distribution, if any. Explain. b. Calculate Randy's basis in the inventory received. c. Calculate Randy's basis for his partnership interest after the distribution.

A partnership must provide any information to the partners that they would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries, because AMT and the foreign tax credit are calculated by the partnership.

Nicholas, a one-third partner, received a guaranteed payment in the current year of $50,000. Partnership income before consideration of the guaranteed payment was $20,000. Assuming that no loss limitation rules apply, Nicholas reports a $10,000 ordinary loss from partnership operations and the $50,000 guaranteed payment as ordinary income.

ABC LLC reported the following items on the LLC's Schedule K: ordinary income, $100,000; interest income, $3,000; long-term capital loss, ($4,000); charitable contributions, $1,000; AMT depreciation adjustment, $10,000; and cash distributions to partners, $50,000. How much will ABC show as net income (loss) on its Analysis of Income (Loss)?