Exam 21: Partnerships

Crystal contributes land to the newly formed CD Partnership in exchange for a 40% interest.The land has an adjusted basis and fair market value of $200,000 and is subject to a liability of $50,000, which the partnership assumes.None of this liability is repaid at year-end.At the end of the year, the partnership has trade accounts payable of $60,000.Assume all liabilities are allocated proportionately to the partners.Total partnership income for the year is $300,000.What is Crystal's basis in her partnership interest at the end of the year?

A gain will only arise on a distribution of cash that exceeds the partner's basis in the partnership interest.For this purpose, only cash, checks, and credit card charges are treated as cash.

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.In addition, BAM distributed $8,000 to Allison and paid partner Brian a $20,000 consulting fee (neither of these amounts was deducted in determining the $60,000 loss from operations).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:

Which of the following statements, if any, about an LLC is false?

Sharon contributed property to the newly formed QRST Partnership.The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date.The property was also encumbered by a $120,000 nonrecourse debt, which was transferred to the partnership on that date.Another partner, Rochelle, shares 30% of the partnership income, gain, loss, deduction, and credit.Under IRS regulations, Rochelle's share of the nonrecourse debt for basis purposes is:

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.

Greg and Justin are forming the GJ Partnership.Greg contributes $500,000 cash and Justin contributes nondepreciable property with an adjusted basis of $200,000 and a fair market value of $550,000.The property is subject to a $50,000 liability, which is also transferred into the partnership and is shared equally by the partners for basis purposes.Greg and Justin share in all partnership profits equally except for any precontribution gain, which must be allocated according to the statutory rules for built-in gain allocations.

Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership.If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses in determining the partnership's net income (loss).This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

An example of the "entity concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

On a partnership's Form 1065, which of the following statements is not true?

Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

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.

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

The LMO Partnership distributed $30,000 cash to Emma in a proportionate, nonliquidating distribution.Emma's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution, Emma's basis is reduced to $0 and she recognizes a $5,000 gain.

In a proportionate liquidating distribution, Alexandria receives a distribution of $70,000 cash, accounts receivable (basis of $0, fair market value of $20,000), and land (basis of $30,000, fair market value of $60,000).In addition, the partnership repays all liabilities, of which Alexandria's share was $40,000.Alexandria's basis in the entity immediately before the distribution was $90,000.As a result of the distribution, what is Alexandria's basis in the accounts receivable and land, and how much gain or loss does she recognize?

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

Which one of the following statements regarding partnership taxation is incorrect?

Josh has a 25% capital and profits interest in the calendar-year GDJ Partnership.His adjusted basis for his partnership interest on October 15 of the current year is $300,000.On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh.