Exam 9: Partnership Formation and Operation

Explain the difference between partnership distributions and distributive shares.

Identify which of the following statements is true.

Samantha works 40 hours a week as a clerk in the mall and earns $28,000.In addition,she works five hours each week in the XYZ Partnership's office.Samantha,a 15% limited partner in the XYZ Partnership,has been allocated a $4,000 loss from the partnership for the current year.The basis for her interest in XYZ before accounting for current operations is $7,000.What tax issues should Samantha consider with respect to her interest in,and employment by,the XYZ Partnership?

Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.

In January,Daryl and Louis form a partnership with each contributing $75,000 in cash.The partnership agreement provides that Daryl would receive a guaranteed payment for salary of $20,000 and that partnership profits and losses (computed after deducting Daryl's salary)would be shared equally.For the year,the partnership's operations result in an $18,000 ordinary loss after payment of Daryl's guaranteed payment.The partnership has no outstanding liabilities at year-end.What is the basis amount of Daryl's partnership interest at year-end?

David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital,profits,and losses.The land is subject to a $30,000 recourse liability,which is assumed by the partnership.The partnership has other recourse liabilities of $18,000.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.David must recognize a

Identify which of the following statements is true.

George receives a 10% limited partnership interest (capital and profits interest)in the HIJ Partnership in return for managing the partnership's rental property.The partnership interest has an FMV of $35,000.What is the amount and character of the income (if any)that George must report as a result of becoming a partner?

A partner's share of nonrecourse debt increases that partner's share of basis.

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 $8,000 in losses and its liabilities increase by $4,000.What is Dan's basis in his partnership interest on December 31,2010?

The partners of the MCL Partnership,Martin,Clark,and Lewis,share profits and losses in a ratio of 4:3:3,respectively.The tax basis of each partner,as of December 31 of the current year,is as follows: Martin,$7,200; Clark,$6,000; and Lewis,$2,500.During the current year,the partnership incurred an ordinary loss of $15,000.The loss is not reflected in the tax basis figures presented above.Nothing else occurs during the year that would affect the partners' bases.As a result of this loss,what amount should Martin,Clark,and Lewis report on their individual tax returns for the current year? What limitations (other than the Sec.704(d)loss limitations)may prevent them from deducting their losses in the current year?

Bao had investment land that he purchased in 1990 for $80,000.Two years ago,when the land was contributed to a partnership,the FMV was $50,000.The land is inventory in the hands of the partnership.The partnership then sells the land in the current year for $46,000.The partnership's recognized loss is

Identify which of the following statements is true.

Jane contributes land with an FMV of $100,000 and a basis of $80,000 to the Green Partnership in exchange for a 25% partnership interest.The partnership assumes the $40,000 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?