Exam 21: Partnerships

In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities, and $20,000 as a distribution to partner Olivia.In addition, the partnership earned $6,000 of long-term capital gains during the year.Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year?

At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000.She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $40,000), and land (basis of $30,000, fair market value of $50,000).After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are:

The "outside basis" is defined as a partner's basis in the partnership interest.

Sharon and Sue are equal partners in the S&S Partnership.On January 1 of the current year, each partner's adjusted basis in S&S was $80,000 (including each partner's $20,000 share of the partnership's $40,000 of liabilities).During the current year, S&S repaid $30,000 of the debt and borrowed $20,000 for which Sharon and Sue are equally liable.In the current year ended December 31, S&S also sustained a net operating loss of $40,000 and earned $10,000 of interest income from investments.If liabilities are shared equally by the partners, on January 1 of the next year how much is each partner's basis in her interest in S&S?

Jared owns a 40% interest in the capital and profits of the JAJ Partnership.Immediately before he receives a proportionate nonliquidating distribution from JAJ, the basis of his partnership interest is $60,000.The distribution consists of $40,000 in cash and land with a fair market value of $25,000.JAJ's adjusted basis in the land immediately before the distribution is $30,000.As a result of the distribution, Jared recognizes no gain or loss and his basis in the land is $20,000.

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000.His basis in his partnership interest was $15,000 immediately before the distribution.Carlos assigns a basis of $5,000 to the inventory, and recognizes a $2,000 capital loss.

Jonathon owns a one-third interest in a liquidating partnership.Immediately before the liquidation, Jonathon's basis in the partnership interest is $60,000.The partnership distributes cash of $32,000 and two parcels of land (each with a fair market value of $10,000).Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000.Jonathon's basis in the two parcels of land is:

Syndication costs arise when partnership interests are being marketed to investors.These costs are amortized over 180 months.

At the beginning of the year, Heather's "tax basis" capital account balance in the HEP Partnership was $60,000.During the tax year, Heather contributed property with a basis of $10,000 and a fair market value of $30,000.Her share of the partnership's ordinary income and separately stated income and deduction items was $26,000.At the end of the year, the partnership distributed $10,000 of cash to Heather.Also, the partnership allocated $15,000 of recourse debt and $25,000 of nonrecourse debt to Heather.What is Heather's ending capital account balance determined using the "tax basis" method?

In a proportionate nonliquidating distribution, cash is deemed to be distributed first, followed by unrealized receivables and inventory and, last, capital and other assets.

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.

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner, regardless of whether or not distributed.

The partnership reports each partner's share of income to the partner in a single amount on Form 1099.

Nicole's basis in her partnership interest was $160,000, including her $50,000 share of partnership liabilities.The partnership decides to liquidate, and after repaying all liabilities, distributes all remaining assets proportionately to the partners.Nicole receives $30,000 cash and accounts receivable with a $50,000 basis and a $52,000 fair market value to the partnership.What gain or loss does Nicole recognize, and what is her basis in the accounts receivable?

A distribution cannot be "proportionate" if only one partner receives assets from the partnership.

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

Aaron owns a 30% interest in a continuing partnership.The partnership distributes a $35,000 year-end cash payment to all the partners.In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $15,000, fair market value of $20,000) to Aaron.Immediately before the distribution, Aaron's basis in the partnership interest was $50,000.As a result of the distribution, Aaron recognizes:

A partnership cannot use the cash method of accounting if one of the partners is a C corporation.

Alicia and Barry form the AB Partnership at the start of the current year with a land contribution by Barry and a cash contribution by Alicia.Barry's contributed property is subject to a recourse mortgage assumed by the partnership.Barry has an 80% interest in AB's profits and losses.The land has been held by Barry for the past 6 years as an investment.It will be used by AB as an operating asset in its parking lot business.Which of the following statements is correct?

Nicholas, a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year, received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Nicholas must report a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.