Exam 9: Forming and Operating Partnerships

On January 1,X9,Gerald received his 50% profits and capital interest in High Air,LLC in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage.High Air reported a $15,000 loss for its X9 calendar year.How much loss can Gerald deduct,and how much loss must he suspend if he only applies the tax basis loss limitation?

At the end of year 1,Tony had a tax basis of $40,000 in Tall Ladders,Limited Partnership.Tony has a 20 percent profits interest in Tall Ladders.For year 2,Tall Ladders will pay Tony a $10,000 guaranteed payment for extra services he provides to the partnership.Given the following Income Statement and Balance Sheet from Tall Ladders,what is Tony's adjusted tax basis at the end of year 2?

Erica and Brett decide to form their new motorcycle business as an LLC.Each will receive an equal profits (loss)interest by contributing cash,property,or both.In addition to the members' contributions,their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed.Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles.The building has a FMV of $45,000,an adjusted basis of $30,000,and is secured by a $35,000 nonrecourse mortgage that the LLC will assume.What is Brett's outside tax basis in his LLC interest?

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

This year,Reggie's distributive share from Almonte Partnership includes $8,000 of interest income,$4,000 of dividend income,and $60,000 ordinary business income. A.Assume that Reggie materially participates in the partnership.How much of his distributive share from Almonte Partnership is potentially subject to the Medicare contribution tax? B.Assume that Reggie does not materially participate in the partnership.How much of his distributive share from Almonte Partnership is potentially subject to the Medicare contribution tax?

Styling Shoes,LLC filed its 20X8 Form 1065 on March 15,20X9.Styling had three members with the following ownership interests and tax basis at the beginning of the 20X8: (1)Jane,a member with a 25% profits and capital interest and a $5,000 outside basis,(2)Joe,a member with a 45% profits and capital interest and a $10,000 outside basis,and (3)Jack,a member with a 30% profits and capital interest and a $2,000 outside basis.The following items were reported on Styling's Schedule K for the year: ordinary income of $100,000,Section 1231 gain of $15,000,charitable contributions of $25,000,and tax-exempt income of $3,000.In addition,Styling received an additional bank loan of $12,000 during 20X8.What is Jane's tax basis after adjustment for her share of these items?

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?

If a taxpayer sells a passive activity with suspended passive activity losses from prior years,what type of income can be offset by the suspended passive losses in the year of sale?

The term "outside basis" refers to the partnership's basis in its assets; whereas,the term "inside basis" refers an individual partner's basis in her partnership interest.

Which of the following would not be classified as a material participant in an activity?

Lloyd and Harry,equal partners,form the Ant World Partnership.During the year,Ant World had the following revenue,expenses,gains,losses,and distributions: Given these items,what amount of ordinary business income (loss)and what separately-stated items should be allocated to each partner for the year?

On January 1,20X9,Mr.Blue and Mr.Grey each contributed $100,000 to form the B&G general partnership.Their partnership agreement states that they will each receive a 50% profits and loss interest.The partnership agreement also provides that Mr.Blue will receive an annual $36,000 guaranteed payment.B&G began business on January 1,20X9.For its first taxable year,its accounting records contained the following information. The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30,20X9.B&G repaid $10,000 of the loan on December 15,20X9.Neither of the partners received a cash distribution from B&G in 20X9. Complete the following table related to Mr.Blue's interest in B&G partnership:

Tom is talking to his friend Bob,who has an interest in Freedom,LLC,about purchasing his LLC interest.Bob's outside basis in Freedom,LLC is $10,000.This includes his $2,500 one-fourth share of the LLC's debt.Bob's 704(b)capital account is $17,000.If Tom bought Bob's LLC interest for $17,000,what would Tom's outside basis be in Freedom,LLC?

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

For partnership tax years ending after December 31,2015,partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Which of the following items are subject to the Net Investment Income tax when an individual partner is a material participant in the partnership?

Which of the following statements regarding capital and profit interests received for services contributed to a partnership is false?

Partnerships may maintain their capital accounts according to which of the following rules?

On June 12,20X9,Kevin,Chris,and Candy Corp.came together to form Scrumptious Sweets General Partnership.Now,Scrumptious Sweets must decide which tax year-end to use.Kevin and Chris have calendar year-ends and each holds a 35% profits and capital interest.However,Candy Corp.has a September 30^th year-end and holds the remaining 30% profits and capital interest.What tax year-end must Scrumptious Sweets adopt and what rule mandates this year-end?

Tax elections are rarely made at the partnership level.