Exam 10: Partnerships: Formation, operation, and Basis

On Form 1065,partners' capital accounts should be determined using the same method on Schedule L,Schedule M-2,and the Schedules K-1 prepared for the partners.

Which of the following statements is not a requirement of the substantial economic effect test?

During the current tax year,Jordan and Whitney each contributed $50,000 to form the J&W LLC.Each member has a 50% interest in LLC capital,profits,and losses,except that depreciation expense is allocated 40% to Jordan and 60% to Whitney.During the first year,the LLC reported income (before depreciation expense)of $20,000 and had depreciation expense of $10,000.The LLC incurred recourse debt (that was personally guaranteed by both of the LLC members)of $60,000.Partnership assets are $170,000 at the end of the year.Under the constructive liquidation scenario,how is the recourse debt allocated to Jordan and Whitney?

At the beginning of the tax year,Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.For the tax year,Zach will report:

A partnership is an association formed by two or more taxpayers (who must be individuals)to carry on a trade or business.

Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership.The partnership reported $200,000 of net income from operations,a $2,000 short-term capital loss,and a $10,000 charitable contribution.In addition,the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy.Assuming the partnership has no beginning or ending liabilities,what is Katherine's basis in her partnership interest at the end of the year?

Rebecca is a limited partner in the RST Partnership,which is not publicly traded.Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is ($60,000).Rebecca has a $40,000 adjusted basis (outside basis)for her interest in RST (before deduction of any of the passive losses).Her amount "at risk" under § 465 is $30,000 (before deduction of any of the passive losses).She also has $25,000 of passive income from other sources.How much of her ($60,000)allocable loss can Rebecca deduct on her current year's tax return?

Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations,they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership.She will also receive a 25% interest in future partnership profits.On July 1 of the current year,the unrestricted partnership capital interest (fair market value of $25,000)was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?

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

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?

In a limited liability partnership,all partners are protected from all debts of the partnership.

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

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 partnership will take a carryover basis in an asset it acquires when:

Which of the following is an election or calculation made by the partner rather than the partnership?

In which of the following independent situations would the transaction most likely be characterized as a disguised sale?

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level,such as for oil and gas depletion or the corporate dividends received deduction.

The JPM Partnership is a US-based manufacturing company.JPM calculates the domestic production activities deduction (§ 199)and deducts that amount on its Form 1065.

Which of the following is a correct definition of a concept related to partnership taxation?