Exam 21: Partnerships

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases,assume the interest is not sold within two years after the time it is granted to the service partner. )

A limited partnership (LP) offers all partners protection from claims by the LP's creditors.

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -§ 179 deduction

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Precontribution gain

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Economic effect test

Tim and Darby are equal partners in the TD Partnership.Partnership income for the year is $60,000.Tim needs cash in order to pay tax on his share of the partnership income,but Darby wants to leave the cash in the partnership for expansion.If the partners agree,it is acceptable for TD to distribute $8,000 to Tim,and no cash or other property to Darby.

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms.b.Partner's percentage allocation of current operating income.c.Might affect any two partners' tax liabilities in different ways.d.Brokerage and registration fees incurred for promoting and marketing partnership interests.e.Transfer of asset to partnership followed by immediate distribution of cash to partner.f.Must have at least one general and one limited partner.g.All partners are jointly and severally liable for entity debts.h.Theory treating the partner and partnership as separate economic units.i.Partner's basis in partnership interest after tax-free contribution of asset to partnership.j.Partnership's basis in asset after tax-free contribution of asset to partnership.k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.m.Allows many unincorporated entities to select their Federal tax status.n.No correct match provided. -Limited liability partnership

At the beginning of the year,Heather's "tax basis" capital account balance in the HEP Partnership was $85,000.During the tax year,Heather contributed property with a basis of $6,000 and a fair market value of $10,000.Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000.At the end of the year,the partnership distributed $15,000 of cash to Heather.Also,the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather.What is Heather's ending capital account balance determined using the "tax basis" method?

Misha receives a proportionate nonliquidating distribution when the basis of her partnership interest is $60,000.The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000,fair market value of $20,000).How much gain or loss does Misha recognize,and what is her basis in the distributed inventory and in her partnership interest following the distribution?

Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate 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:

Nick sells his 25% interest in the LMNO Partnership to new partner Katrina for $57,500.The partnership's assets consist of cash ($100,000),land (basis of $90,000,fair market value of $70,000),and inventory (basis of $40,000,fair market value of $60,000).Nick's basis in his partnership interest was $57,500.On the sale,Nick will recognize ordinary income of $5,000 and a capital loss of $5,000.

Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of $42,000 and a value of $100,000.Kristen and Morgan each have a basis of $100,000 in their partnership interests.

In a proportionate liquidating distribution,RST Partnership distributes to partner Riley cash of $30,000,accounts receivable (basis of $0,fair market value of $40,000),and land (basis of $65,000,fair market value of $50,000).Riley's basis was $40,000 before the distribution.On the liquidation,Riley recognizes a gain of $0,and her basis is $10,000 in the land and $0 in the accounts receivable.

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

The sum of the partners' ending basis amounts on all Schedules K-1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

Allison is a 40% partner in the BAM Partnership.At the beginning of the tax year,Allison's 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:

What is the difference between a partner's basis in the partnership interest and a partner's § 704(b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

Landis received $90,000 cash and a capital asset (basis of $50,000,fair market value of $60,000) in a proportionate liquidating distribution.His basis in his partnership interest was $120,000 prior to the distribution.How much gain or loss does Landis recognize and what is his basis in the asset received?

Dan receives a proportionate nonliquidating distribution when the basis of his partnership interest is $30,000.The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500.Dan's basis in the noncash property is:

In a proportionate liquidating distribution in which the partnership is also liquidated,Ralph received cash of $30,000,accounts receivable (basis of $0,fair market value of $20,000),and equipment (basis of $0,fair market value of $10,000).Immediately before the distribution,Ralph's basis in the partnership interest was $40,000.Ralph realizes and recognizes a loss of $10,000,and his basis is $0 in both the accounts receivable and the equipment.