Exam 9: Partnership Formation and Operation

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?

Identify which of the following statements is true.

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

Sarah purchased land for investment in 2008 for $80,000.In 2009 when the FMV of the land was only $70,000,she contributed it to the SL Partnership,which is in the business of developing and selling lots.SL Partnership developed the contributed land and sold it in 2010 for $50,000.What is the amount and character of the gain or loss?

Allen contributed land,which was being held for sale to Allen's customers,to a partnership in exchange for a 20% interest.The partnership uses the land in its business for three years and then sells the property.When the property was contributed,it had a basis in Allen's hands of $500,000 and an FMV of $600,000.The partnership sells the land for $700,000.The gain reported by the partnership is

Matt and Joel are equal partners in the MJ Partnership.For the current year ended December 31,the partnership has book income of $80,000,which includes the following deductions: (1)guaranteed payments (salaries)to partners: Matt,$35,000;and Joel,$25,000;and (2)charitable contributions,$6,000.The book income amount does not include any sales of capital assets or Sec.1231 assets or any tax-exempt income.Based on the above information,what amount should be reported as ordinary income on the partnership return?

When computing the partnership's ordinary income,a deduction is allowed for

Bud has devoted his life to his business,the BK Partnership,in which he owns an 85% capital and profits interest.Because he has worked so hard all his life,he never married and has no children.He has decided to give a 25% capital and profits interest to Berry,a close friend,if Berry will work in the business for five years.Berry will receive guaranteed payments for his work.Bud devotes all his time to the partnership,but he takes no salary.What tax issues should Bud and Berry consider with respect to the gift of the partnership interest and Bud's employment arrangement with the partnership?

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

Mary and Martha,who had been friends for years,decided to open a retail store to sell kitchen and bath items.In June,they spent $500 looking for a suitable location.They paid an attorney $1,500 to have their partnership agreement drawn up,and they paid an accountant $400 to set up their accounting system.During July,they searched for vendors for the merchandise they planned to carry and stocked their shelves.The store opened in August and was immediately successful.They paid the accountant $300 to prepare an income statement for August.What tax issues should the partnership consider with regard to beginning this business?

On the first day of the partnership's tax year,Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year.The partnership has $40,000 in recourse liabilities when Karen enters the partnership.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.There is no minimum gain related to the nonrecourse liability.During the year,the partnership incurs a $120,000 loss and a $20,000 increase in liabilities.How much of the loss can Karen report on her tax return for the current year?

A partner's basis for his partnership interest can be negative.

Yee manages Huang real estate,a partnership in which she is also a partner.She receives 40% of all partnership income before guaranteed payments,but no less than $80,000 per year.In the current year,the partnership reports $100,000 in ordinary income.What is Yee's distributive share and her guaranteed payment?

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

Identify which of the following statements is true.

Edward owns a 70% interest in the capital,profits,and losses of the Edward and Moore Partnership.During the year,Edward purchases surplus inventory from the partnership for $5,000.On the date of the sale,the inventory has an adjusted basis to the partnership of $8,000.For the year,the partnership's ordinary income is $50,000 after including the loss on the sale of the inventory to Edward.Assuming that there are no other partnership items to be separately stated,what is Edward's distributive share of the partnership's ordinary income for the year?

Jerry has a 10% interest in the EKG Partnership capital,profits,and losses.He is a limited partner.At the beginning of the current year,his basis in his partnership interest is $10,000.The partnership earned $20,000 of ordinary income this year and repaid a $150,000 nonrecourse liability.What tax issues should Jerry consider with respect to reporting the results of this year's activities for the EKG Partnership on his personal return?

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

Explain the difference between partnership distributions and distributive shares.

At the beginning of the current year,Terry has a $40,000 basis for his general partnership interest in the TKE Partnership.He materially participates in the business activities of the partnership.On November 1,he receives a $4,000 distribution.His distributive share of TKE's current items is a $5,000 net long-term capital gain and a $50,000 ordinary loss.What amount will he include in his current year's tax return?