Exam 9: Forming and Operating Partnerships

Partnerships tax rules incorporate both the entity and aggregate approaches.

On 12/31/X4,Zoom,LLC reported a $60,000 loss on its books.The items included in the loss computation were $30,000 in sales revenue,$15,000 in qualified dividends,$22,000 in cost of goods sold,$50,000 charitable contribution,$20,000 in employee wages,and $13,000 of rent expense.How much ordinary business income (loss)will Zoom report on its X4 return?

Under proposed regulations issued by the Treasury Department,in which of the following situations should an LLC member be treated as a general partner for self-employment tax purposes?

Bob is a general partner in Fresh Foods Partnership and is trying to determine if the income reported on his K-1 should be classified as passive or active trade or business income.List three different criteria that,if met,would allow Bob to treat the income from Fresh Foods as active trade or business income.

Frank and Bob are equal members in Soxy Socks,LLC.When forming the LLC,Frank contributed $50,000 in cash and $50,000 worth of equipment.Frank's adjusted basis in the equipment was $35,000.Bob contributed $50,000 in cash and $50,000 worth of land.Bob's adjusted basis in the land was $30,000.On 3/15/X4,Soxy Socks sells the land Bob contributed for $60,000.How much gain (loss)related to this transaction will Bob report on his X4 return?

The least aggregate deferral test uses the profit percentage of each partner to determine the minimum amount of tax deferral for the partner group as a whole in determining the permissible tax year-end of a partnership.

Which of the following statements regarding the rationale for adjusting a partner's basis is false?

The character of each separately-stated item is determined at the partner level.

For partnership tax years ending after December 31,2015,when must a partnership file its return?

On April 18,20X8,Robert sold his 35 percent partnership interest in Fruit Wonder,LLC to Richard for $120,000.Prior to selling his interest,Robert had a basis in Fruit Wonder of $80,000.Robert's basis included $5,000 of recourse debt and $15,000 of nonrecourse debt that had been allocated to him.Immediately after the purchase,what is Richard's tax basis in Fruit Wonder?

Sue and Andrew form SA general partnership.Each person receives an equal interest in the newly created partnership.Sue contributes $10,000 of cash and land with a FMV of $55,000.Her basis in the land is $20,000.Andrew contributes equipment with a FMV of $12,000 and a building with a FMV of $33,000.His basis in the equipment is $8,000,and his basis in the building is $20,000.How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

If a partner participates in partnership activities on a regular,continuous,and substantial basis,then the partnership's activities with respect to this individual partner are not considered passive.

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.

What is the difference between a partner's tax basis and at-risk amount?

XYZ,LLC has several individual and corporate members.Abe and Joe,individuals with 4/30 year-ends,each have a 23% profits and capital interest.RST,Inc.,a corporation with a 6/30 year end,owns a 4% profits and capital interest while DEF,Inc.,a corporation with an 8/30 year end,owns a 4.9% profits and capital interest.Finally,thirty other calendar year-end individual partners (each with less than a 2% profits and capital interest)own the remaining 45% of the profits and capital interests in XYZ.What tax year-end should XYZ use and which test or rule requires this year-end?

Which requirement must be satisfied in order to specially allocate partnership income or losses to partners?

Jordan,Inc.,Bird,Inc.,Ewing,Inc.,and Barkley,Inc.formed Nothing-But-Net Partnership on June 1^st,20X9.Now,Nothing-But-Net must adopt its required tax year-end.The partners' year-ends,profits interests,and capital interests are reflected in the table below.Given this information,what tax year-end must Nothing-But-Net use and what rule requires this year-end?

Illuminating Light Partnership had the following revenues,expenses,gains,losses,and distributions: Given these items,what is Illuminating Light's ordinary business income (loss)for the year?

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

Zinc,LP was formed on August 1,20X9.When the partnership was formed,Al contributed $10,000 in cash and inventory with a FMV and tax basis of $40,000.In addition,Bill contributed equipment with a FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with a FMV and tax basis of $20,000.Also,Chad contributed land with a FMV of $50,000 and tax basis of $35,000.Finally,Dave contributed a machine,secured by $35,000 of debt,with a FMV of $15,000 and a tax basis of $10,000.What is the total inside basis of all the assets contributed to Zinc,LP?