Exam 9: Partnership Formation and Operation

Clark and Lewis are partners who share the profits and losses of the C&L Partnership 60% and 40%,respectively.The tax basis of each partner's interest in the partnership as of December 31 of last year was as follows: Clark,$14,000; Lewis,$12,000.During the current year,the partnership had ordinary income of $20,000 and a long-term capital loss of $10,000 from the sale of securities.The partnership made cash distributions proportionately to the two partners during this year totaling $20,000.What is the amount of Lewis's tax basis of his partnership interest on December 31 of the current year?

Identify which of the following statements is true.

Jeremey is a partner in the Jimmy partnership.Why does he need to know his basis in his partnership interest?

Dan purchases a 25% interest in the Haymarket Partnership for $20,000 on January 1,2010,and begins to materially participate in the partnership's business.The Haymarket Partnership uses the calendar year as its tax year.At the time of the purchase,the Haymarket Partnership has $2,000 in liabilities,and Dan's share is 25%.During the year,the Haymarket Partnership incurs $100,000 in losses and its liabilities increase by $4000.What is Dan's basis in his partnership interest on December 31,2010?

Martin is a limited partner in a card shop.At the end of the partnership's tax year,Martin's basis in the partnership interest is $25,000 ($5,000 cash investment plus a $20,000 share of nonqualified nonrecourse financing).Martin's distributive share of partnership losses for the tax year is $33,000.Martin has $30,000 of passive income this year from other activities.How much of the $33,000 partnership loss can be used by Martin in the year of the loss?

Electing large partnership rules differ from other partnership rules in all of the following areas except

Jane contributes land with an FMV of $100,000 and a basis of $40,000 to the Green Partnership in exchange for a 25% partnership interest.The partnership assumes the $80,000 mortgage on the land.Mary has a 25% share of partnership liabilities.The Green Partnership has $8,000 in liabilities immediately before Jane's contribution.What is Jane's basis in her partnership interest?

What is included in partnership taxable income?

In computing the ordinary income of a partnership,a deduction is allowed for

Jason,a lawyer,provided legal services for the employees of the ABC Partnership during the first six months of the current year.In exchange,he received a 2% capital and profits interest in the partnership.The value of the interest is $5,000.What are the tax consequences to Jason,the ABC Partnership,and the employees of ABC?

Victor and Kristina decide to form VK Partnership.They will be equal partners.Victor contributes a building with a $150,000 FMV and a $105,000 adjusted basis to the partnership.The building has a $60,000 mortgage,which the partnership assumes.Kristina contributes land with a $70,000 FMV and a $95,000 adjusted basis.Kristina will manage the day-to-day activities of the partnership.She will begin to receive a guaranteed payment for her work,starting in the second year of operations,and continuing on as long as she manages the operations of the partnership.Victor and Kristina have agreed that the guaranteed payment will be $10,000 per year.What tax issues should Victor,Kristina,and the partnership consider with respect to the formation and operation of the partnership?

Albert contributes a Sec.1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest.He had purchased the asset on March 1,2002.His holding period for the partnership interest begins

Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest.Mario had purchased the inventory on July 2 of last year.His holding period for the partnership interest begins

The XYZ Partnership is held by ten partners who have the following capital and profits ownership of the partnership.The tax year-end used by each of the ten partners is also indicated.Assume each partner has used this year-end for at least five years. What is the required year-end for the XYZ Partnership,assuming that the business has no natural business year and has not filed a Sec.444 election?

Which of the following is false?

Latoya owns a 10% interest in the ABC Partnership from January 1 through June 30 (the 181st day of the tax year)of the current year (a non-leap year).On July 1,Latoya buys an additional 10% interest in the partnership.The XYZ Partnership's ordinary income is $109,500 and it is earned evenly throughout the year.Latoya's distributive share of the ordinary income is