Exam 21: Partnerships

The December 31 balance sheet of DBW, LLP, a service-providing partnership, reads as follows. Adjusted Basis FMV Cash \ 180,000 \ 180,000 Receivables -0- 60,000 Capital assets Total \ 270,000 \ 360,000 Dana, capital \ 90,000 \ 120,000 Brooke, capital 90,000 120,000 Whitney, capital Total \ 270,000 \ 360,000 The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership. On December 31, partner Dana (who is an active managing partner in the partnership) receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736. Dana's outside basis for the partnership interest immediately before the distribution is $90,000. How much is her gain or loss on the distribution and what is its character?

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.

Kristie is a 25% member in the KLM LLC. At the end of the year, KLM has accounts payable of $60,000 (recourse to the LLC but not guaranteed by the LLC members), and a nonrecourse debt related to real estate of $300,000 (meets the at risk limitation requirements). In addition, Kristie personally guaranteed a $50,000 liability for KLM's equipment purchases. Which of the following indicates the information that should be reported on Kristie's Schedule K-1 for the year?

Match each of the following statements with the terms below that provide the best definition. -Required taxable year

Tara and Robert formed the TR Partnership four years ago. Because they decided the company needed some expertise in multimedia presentations, they offered Katie a one-third interest in partnership capital if she would come to work for the partnership. On July 1 of the current year, the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie. How should Katie treat the receipt of the partnership interest in the current year?

Which of the following entity owners cannot participate in the management of an entity?

In a proportionate liquidating distribution of his 40% interest in the RST LLC, Stuart received cash ($100,000), land (basis of $60,000 and value of $90,000), and inventory (basis of $30,000 and value of $40,000). In addition, Stuart is relieved of his $80,000 share of the LLC's liabilities. Stuart's basis in RST (including his share of LLC liabilities) was $200,000 immediately prior to this distribution. a. How much gain or loss does Stuart recognize on this distribution? b. What is Stuart's basis in the land and inventory he receives in the distribution?

Which of the following statements is always true regarding accounting methods available to a partnership?

Josh owns a 25% capital and profits interest in the calendar year GDJ Partnership. His adjusted basis for his partnership interest on October 15 of the current year is $300,000. On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh. a. Calculate Josh's recognized gain or loss on the liquidating distribution, if any, and his basis in the distributed inventory. How would your answer to a. change if the partnership also distributed a small parcel of land it b. had held for investment to Josh? Assume the land has a $5,000 adjusted basis (FMV is $8,000) to the partnership.

Molly is a 30% partner in the MAP Partnership. During the current tax year, the partnership reported ordinary income of $200,000 before any permitted deduction for guaranteed payments and distributions to partners. The partnership made an ordinary cash distribution of $20,000 to Molly and made guaranteed payments to partners Molly, Amber, and Pat of $20,000 each ($60,000 total guaranteed payments). How much will Molly's adjusted gross income increase as a result of these items?

A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.

Steve's basis in his SAW Partnership interest is $200,000 including all adjustments at the beginning of the tax year, . His allocable share of partnership items is: ($120,000) of ordinary loss, $6,000 tax-exempt interest income, and a $14,000 long-term capital gain. In addition, during the year, the LLC distributed $20,000 of cash to Steve. Also during the year, Steve's share of partnership debt increased by $10,000. Steve's ending basis in his LLC interest is $80,000.

Compare the different tax results (gains, losses, basis) that might arise for a partner in a proportionate current (nonliquidating) distribution versus a proportionate liquidating distribution, under the general tax rules.

Match each of the following statements with the terms below that provide the best definition. -Qualified business income deduction

Frank receives a proportionate current (nonliquidating) distribution from the AEF Partnership. The distribution consists of $10,000 cash and property (adjusted basis to the partnership of $54,000 and fair market value of $60,000). Immediately before the distribution, Frank's adjusted basis in the partnership interest was $50,000. His basis in the noncash property received is:

William is a general partner in the WST partnership. During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000. William is required to pay self-employment tax on the $10,000 guaranteed payment but not on his distributive share of partnership income.

Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current (nonliquidating) distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000), and land (basis to the partnership of $40,000 and fair market value of $42,000). In addition, Mack's share of partnership debt decreased by $12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest (including debt share) following the distribution?

In a proportionate current (nonliquidating) distribution, cash is deemed to be distributed first followed by capital and § 1231 assets, and last, unrealized receivables and inventory.

AmCo and BamCo form the AB General Partnership at the start of the current year with a land contribution by BamCo and a cash contribution by AmCo. BamCo's contributed property is subject to a recourse mortgage assumed by the partnership. BamCo has an 80% interest in AB's profits and losses. The land has been held by BamCo for the past 6 years as an investment. It will be used by AB as an operating asset in its parking lot business. Which of the following statements is correct?

Kristie is a 30% partner in the KKM Partnership. During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000. The partnership paid office expenses of $80,000. In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and paid partner Kaylyn $20,000 for administrative services. Kristie reports the following income from KKM during the current tax year.