Exam 21: Partnerships

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Binita's adjusted basis (outside basis) for her partnership interest at year-end is:

Andrew receives a proportionate nonliquidating distribution from the AEF Partnership. The distribution consists of $50,000 cash and property (adjusted basis to the partnership of $34,000 and fair market value of $42,000).Immediately before the distribution, Andrew's adjusted basis in the partnership interest was $40,000.His basis in the noncash property received is:

JLK Partnership incurred $15,000 of organizational costs and $75,000 of startup costs in 2012.JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($10,000 of organizational costs and $70,000 of startup costs) may be amortized over 180 months.

In a proportionate liquidating distribution, RST Partnership distributes to partner Riley cash of $30,000, accounts receivable (basis of $0, fair market value of $40,000), and land (basis of $65,000, fair market value of $50,000).Riley's basis was $40,000 before the distribution.On the liquidation, Riley recognizes a gain of $0, and her basis is $10,000 in the land and $0 in the accounts receivable.

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume the interest is not sold within two years after the time it is granted to the service partner.)

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

Maria owns a 60% interest in the KLM Partnership.Four years ago her father gave her a parcel of land.The gift basis of the land to Maria is $60,000.In the current year, Maria had still not figured out how to use the land for her own personal or business use; consequently, she sold the land to the partnership for $75,000.The partnership immediately started using the land as a parking lot for its employees.Maria's recognized gain of $15,000 on the sale is capital-not ordinary.

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership.An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.

Karli owns a 25% capital and profits interest in the calendar-year KJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $200,000.On that date, she receives a proportionate nonliquidating distribution of the following assets:

Matt receives a proportionate nonliquidating distribution.At the beginning of the partnership year, the basis of his partnership interest is $60,000.During the year, he received a cash distribution of $25,000 and a property distribution (basis of $20,000, fair market value of $12,000).In addition, Matt's share of partnership liabilities was reduced by $20,000 during the year.How much gain or loss does Matt recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?

Which of the following statements is always true regarding accounting methods available to a partnership?

Harry and Sally are considering forming a partnership.Both taxpayers use the calendar year and are cash basis taxpayers.The partnership will not be a tax shelter.The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting.Also, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership.

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?

Match each of the following statements with the terms below that provide the best definition.

In a proportionate liquidating distribution in which the partnership is liquidated, Marcus received cash of $60,000, inventory (basis of $10,000, fair market value of $12,000), and a capital asset (basis and fair market value of $22,000).Immediately before the distribution, Marcus's basis in the partnership interest was $100,000.

Megan's basis was $100,000 in the MAR Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $80,000, fair market value of $100,000) and inventory (basis of $60,000, fair market value of $50,000).After the distribution, Megan's bases in the land and inventory are, respectively:

In a proportionate nonliquidating distribution of cash and a capital asset, the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Samuel is the managing general partner of STU, in which he owns a 30% interest.For the year, STU reported income of $260,000 (after deducting all guaranteed payments).Samuel received a guaranteed payment of $40,000 for capital that he had loaned the partnership, and he received a guaranteed payment of $120,000 for services he performed for STU.How much income from self-employment did Samuel earn from STU?

Palmer contributes property with a fair market value of $4,000,000 and an adjusted basis of $3,000,000 to AP Partnership.Palmer shares in $1,000,000 of partnership debt under the liability sharing rules, giving him an initial adjusted basis for his partnership interest of $4,000,000.One month after the contribution, Palmer receives a cash distribution from the partnership of $2,000,000.Palmer would not have contributed the property if the partnership had not contractually obligated itself to make the distribution.Assume Palmer's share of partnership liabilities will not change as a result of this distribution.

Melissa is a partner in a continuing partnership.At the end of the current year, the partnership makes a proportionate, nonliquidating distribution to Melissa of $50,000 cash, inventory (basis of $22,000, fair market value of $20,000), and land (basis of $30,000, fair market value of $60,000).Melissa's basis in the partnership interest was $90,000 before the distribution.What is Melissa's basis in the inventory, land, and partnership interest following the distribution?