Exam 21: Partnerships

​Micah's beginning capital account on his Schedule K-1 is $60,000.During the year,he is allocated $20,000 of partnership income,$8,000 of nondeductible expenses,and a $12,000 share of tax-exempt income.His Schedule K-1s show allocations of nonrecourse debt of $20,000 (last year) and $30,000 (this year).Micah's ending capital account is $94,000.

Section 721 provides that,in general,no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

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 (before the following payments to the partners).In addition,BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee.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:

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating income. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general and one limited partner. g.All partners are jointly and severally liable for entity debts. h.Theory treating the partner and partnership as separate economic units. i.Partner's basis in partnership interest after tax-free contribution of asset to partnership. j.Partnership's basis in asset after tax-free contribution of asset to partnership. k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. m.Allows many unincorporated entities to select their Federal tax status. n.No correct match provided. -Limited liability company

If a partnership earns tax-exempt income,the income should not affect the partners' bases in their partnership interests.Do you agree with this statement? Explain.

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating income. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general and one limited partner. g.All partners are jointly and severally liable for entity debts. h.Theory treating the partner and partnership as separate economic units. i.Partner's basis in partnership interest after tax-free contribution of asset to partnership. j.Partnership's basis in asset after tax-free contribution of asset to partnership. k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. m.Allows many unincorporated entities to select their Federal tax status. n.No correct match provided. -Profits interest

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

A limited partnership (LP) offers all partners protection from claims by the LP's creditors.

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.

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. a. Adjusted basis of each partnership asset. b. Operating expenses incurred after entity is formed but before it begins doing business. c. Each partner's basis in the partnership. d. Reconciles book income to "taxable income." e. Tax accounting election made by partnership. f. Tax accounting calculation made by partner. g. Tax accounting election made by partner. h. Does not include liabilities. i. Designed to prevent excessive deferral of taxation of partnership income. j. Amount that may be received by partner for performance of services for the partnership. k. Theory under which a partnership's recourse debt is shared among the partners. l. Will eventually be allocated to partner making tax-free property contribution to partnership. m. Partner's share of partnership items. n. Must generally be satisfied by any allocation to the partners. o. Justification for a tax year other than the required taxable year. p. No correct match is provided. -Inside basis

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:

An examination of the RB Partnership's tax books provides the following information for the current year. ​ Rachel is a 30% general partner in partnership capital,profits,and losses.Assume the adjusted basis of her partnership interest is $60,000 at the beginning of the year,and she shares in 30% of the partnership's liabilities for basis purposes. a.What is Rachel's adjusted basis for the partnership interest at the end of the year? b.​How much income must Rachel report on her tax return for the current year? What is the character of the income and what types of tax might apply to it?

​Which one of the following statements is TRUE regarding a partner's personal liability for partnership assets?

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. a. Adjusted basis of each partnership asset. b. Operating expenses incurred after entity is formed but before it begins doing business. c. Each partner's basis in the partnership. d. Reconciles book income to "taxable income." e. Tax accounting election made by partnership. f. Tax accounting calculation made by partner. g. Tax accounting election made by partner. h. Does not include liabilities. i. Designed to prevent excessive deferral of taxation of partnership income. j. Amount that may be received by partner for performance of services for the partnership. k. Theory under which a partnership's recourse debt is shared among the partners. l. Will eventually be allocated to partner making tax-free property contribution to partnership. m. Partner's share of partnership items. n. Must generally be satisfied by any allocation to the partners. o. Justification for a tax year other than the required taxable year. p. No correct match is provided. -Foreign tax credit vs.deduction

Molly is a 30% partner in the MAP Partnership.During the current tax year,the partnership reported ordinary income of $200,000 before payment of guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $20,000 to Molly,and paid guaranteed payments to partners Molly,Amber,and Pat of $20,000 each ($60,000 total guaranteed payments).How much will Molly's adjusted gross income increase as a result of the above items?

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating income. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general and one limited partner. g.All partners are jointly and severally liable for entity debts. h.Theory treating the partner and partnership as separate economic units. i.Partner's basis in partnership interest after tax-free contribution of asset to partnership. j.Partnership's basis in asset after tax-free contribution of asset to partnership. k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. m.Allows many unincorporated entities to select their Federal tax status. n.No correct match provided. -Substituted

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

​Xena and Xavier form the XX LLC.Xena contributes cash of $20,000,land (basis = $40,000; fair market value = $25,000),equipment (basis = $0; fair market value = $35,000),and inventory (basis = $30,000; fair market value = $40,000).Xavier contributed $100,000 of cash.How much is the partnership's basis in the land,equipment,and inventory,and how much is Xena's basis in the partnership interest?

Samuel is the managing general partner of STU,in which he owns a 25% interest.For the year,STU reported ordinary income of $400,000 (after deducting all guaranteed payments).In addition,the LLC reported interest income of $12,000.Samuel received a guaranteed payment of $120,000 for services he performed for STU.How much income from self-employment did Samuel earn from STU?

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business.She contributes a parcel of this land (basis of $15,000) to a partnership,also to be held as inventory.The fair market value of the property is $12,000 at the contribution date.After three years,the partnership sells the land for $10,000.The partnership will recognize a $5,000 ordinary loss on sale of the property.