Exam 9: Partnership Formation and Operation

A partner's "distributive share" is the partner's share of any assets distributed by the partnership.

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?

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec.721 nontaxable treatment?

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

Briefly explain the aggregate and entity theories as they relate to partnerships.

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?

In January of this year,Arkeva,a calendar-year taxpayer,receives a $50,000 guaranteed payment from NFR Partnership.NFR deducted the payment during its tax year ending November 30 of last year.What tax year must Arkeva report her guaranteed payment in?

The WE Partnership reports the following items for its current tax year: What is the WE Partnership's ordinary income for the current year?

Bob,Kara,and Mark are partners in the BKM Partnership.Bob is a 40% partner and has a June 30 tax year-end.Kara owns a 40% interest in the partnership and has a September 30 tax year-end,and Mark owns the remaining 20% interest and has an October 31 tax year-end.The partnership does not have a natural business year.What is the required tax year-end for the partnership (if no Sec.444 election is made)?

ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.

Guaranteed payments are always ordinary income to the recipient.

For a 20% interest in partnership capital,profits,and losses,Kasi contributes a machine having a basis of $30,000 and an FMV of $40,000.The partnership also assumes a $24,000 recourse liability secured by the machine.The partnership has $6,000 in recourse liabilities immediately preceding Kasi's contributions.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Kasi's basis in the partnership interest is

Mike and Jennifer form an equal partnership.Mike contributes cash of $15,000 and Jennifer contributes land having a $15,000 FMV and a basis of $5,000.If the partnership sells the land three years later for $18,000,what are the tax consequences to Mike and Jennifer?

Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000.The land was subject to a $48,000 mortgage,which was assumed by STUV.No other liabilities existed at the time of contribution.What is Stella's basis in her partnership interest?

On January 1,Helmut pays $2,000 for a 10% capital,profits,and loss interest in a partnership,which has recourse liabilities of $20,000.The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses.In the same year,the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000.Helmut and the partnership use a calendar tax year-end.Helmut's basis at year-end is

A partner's basis for his or her partnership interest is increased by his share of the partnership's tax-exempt income.

Identify which of the following statements is true.

Rashad contributes a machine having a basis of $30,000 and an FMV of $25,000 to a partnership in exchange for a 20% interest in partnership capital,profits,and losses.Prior to the contribution,the partnership had recourse liabilities of $20,000.The partnership assumes a $20,000 recourse liability that is owed by Rashad on the machine.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Rashad's basis in his partnership interest is

Henry has a 30% interest in the HMS Partnership's capital,profits,and losses computed after taking into account his guaranteed payment of $40,000.In the current year,HMS reports ordinary income of $30,000 and capital gains of $60,000 before taking into account Henry's guaranteed payment.What is the amount and character of all income or loss that Henry must report as a result of partnership activities?