Exam 10: Partnership Taxation

Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLC. ​ a.Was a partnership formed during the first year? b.If a partnership was formed, how much income will be taxed at the partnership level? c.For the second year, do they need to file a partnership tax return?

An equal partnership is formed by Rita and Gerry. Rita contributes cash of $10,000 and a building with a fair market value of $150,000, adjusted basis of $55,000, and subject to a liability of $60,000. Gerry contributes cash of $100,000. What is Rita's basis in her partnership interest immediately after formation of the partnership?

Phil and Bill each own a 50 percent interest in P&B Interests. P&B Interests has ordinary income for the year of $35,000 before guaranteed payments to Phil. If Phil receives guaranteed payments of $20,000 during the tax year, what is the total income or loss that should be reported by Bill from the partnership for this tax year?

In December of 2016, Miss Havisham and Pip form a wedding planning business. Each of them own 50 percent of the partnership. The partnership establishes a September 30th year-end since most weddings are during the summer. Therefore, the partnership's initial year-end is September 30, 2017. For the month of December 2016, the partnership made $3,000 after Miss Havisham's guaranteed payment of $1,000. From January through September of 2017, the partnership made a net income of $65,000 after a $1,500 per month guaranteed payment to Miss Havisham. ​ a.How much income should Miss Havisham report for 2016? b.How much income should Miss Havisham report for 2017?

Under which of the following circumstances would a partnership terminate and close its tax year?

Barbara receives a current distribution consisting of $2,000 cash plus other property with an adjusted basis to the partnership of $2,300 and a fair market value on the date of the distribution of $7,000. Barbara has a 10 percent interest in the partnership and her basis in her partnership interest, immediately prior to the distribution, is $5,000. What is Barbara's basis in the non-cash property received in the current distribution?

For tax purposes, in computing the ordinary income of a partnership, a deduction is allowed for:

Partnership losses that are not used because a partner's basis in the partnership interest is zero may not be carried forward and are lost by the partner.

Guaranteed payments received from a partnership are included in the income of the partner receiving the payments on a cash basis, without regard to the partnership's tax year.

A partnership generally must adopt the same tax year as its majority partners.

At the beginning of the year, Joe's basis in his partnership interest was $5,000. During the year, Joe contributed $10,000 in cash to the partnership and signed a bank loan to be personally liable for the partnership's debt of $25,000. For the current year, the partnership allocated a loss of $60,000 to Joe. In the following year, Joe's portion of the partnership income is $30,000. Which of the following is accurate?

The "at-risk" rule does not apply to activities involving real estate.

Jerry receives cash of $15,000 and a building with a fair market value of $50,000 (adjusted basis of $30,000) in a current distribution. a.Assuming his basis in his partnership interest was $50,000, what amount of gain must Jerry recognize as a result of the current distribution? b.Assuming his basis in his partnership interest was $10,000, what amount of gain must Jerry recognize as a result of the current distribution?

Which one of the following is not true about partnerships and their income-reporting process?

The partnership of Truman and Hanover realized the following items of income during the year ended December 31, 2016: Both the partners are on a calendar year basis. What is the total income which should be reported as ordinary income from business activities of the partnership for 2016?

Losses are disallowed for transactions between a partnership and a partner who has a 50 percent interest in the partnership.

Cooke and Thatcher form the C&T Partnership. Cooke contributes equipment with a fair market value of $70,000 and a basis of $35,000, in exchange for an 70 percent interest in the partnership capital and profits. Thatcher performs services worth $30,000 for the partnership in exchange for a 30 percent interest in capital and profits. a.What is the amount of Cooke's recognized gain or loss (if any) as a result of the contribution to the partnership in exchange for the partnership interest? b.What is Cooke's basis in his partnership interest immediately after the contribution? c.What is the amount of Thatcher's recognized income or loss (if any) on the contribution to the partnership? d.What is Thatcher's basis in her partnership interest immediately after the contribution? e.What is C&T Partnership's basis in the equipment received from Cooke?

Mario and Luigi are brothers and they are equal partners in Pipes of Your Dreams Plumbing. Mario sells his fancy sports car to the business for $40,000. Mario's basis in the car is $45,000. a.What is the amount of Mario's recognized gain or loss on this transaction, and what is the nature of the gain or loss? b.If the partnership later sells the sports car for $55,000, how much of the gain is recognized?

Which of the following is a disadvantage of an LLC?

During the current year, Jay is a partner in an automobile dealership. Jay's amount at risk at the beginning of the year is $90,000, and during the current year Jay's share of the dealership's ordinary loss is $120,000. a.What is the amount of the loss from the automobile dealership that Jay may deduct in the current year? b.If the dealership has a profit of $63,000 in the subsequent year, how much of the subsequent year income is taxable to Jay?