Exam 21: Partnerships

Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year.Her allocable share of LLC items are as follows: $20,000 of ordinary income,$2,000 tax-exempt interest income,and a $6,000 long-term capital gain.In addition,the LLC distributed $12,000 of cash to Emma during the year.Assuming the LLC had no liabilities at the beginning or the end of the year,Emma's ending basis in her LLC interest is $76,000.

​Meredith is a passive 30% member of the MNO LLC.She is not a managing member and she does not participate in any activities of the LLC.Her interest is more in the nature of an investment.In the current year,Meredith's distributive share of income from the LLC was $50,000.In addition,she received a guaranteed payment of $40,000 for the use of her capital.Assume that her income from other sources exceeds $500,000.How much of Meredith's LLC income will be subject to the self-employment (SE) tax (under the Proposed Regulations) and the net investment income (NII) tax? (Disregard the additional Medicare tax.)

Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership.If the property is later sold for $70,000,gain of $15,000 will be allocated to Blaine.

What are "syndication costs" and how are they treated for tax purposes?

In a limited liability partnership all members may participate in management and have personal liability for entity debts,except for malpractice committed by the other partners.

Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

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. -Startup costs

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

In the current year,the CAR Partnership received revenues of $400,000 and paid the following amounts: $160,000 in rent,utilities,and salaries; a $40,000 guaranteed payment to partner Ryan; $20,000 to partner Amy for consulting services; and a $40,000 distribution to 25% partner Cameron.In addition,the partnership realized a $12,000 net long-term capital gain.Cameron's basis in his partnership interest was $60,000 at the beginning of the year,and included his $25,000 share of partnership liabilities.At the end of the year,his share of partnership liabilities was $15,000. a.How much income must Cameron report for the tax year? b.What is Cameron's basis in the partnership interest at the end of the year?

A partner will have the same profit-sharing,loss-sharing,and capital-sharing ownership percentages.

​At the beginning of the year,Ryan's capital account balance in the RUS Partnership (in which Ryan owned a 40% interest) was $200,000.During the year Ryan contributed cash ($40,000) and property (basis = $20,000,fair market value = $30,000).RUS reported ordinary income of $100,000 and tax-exempt income of $6,000.At the end of the year,the partnership distributed $6,000 of cash to Ryan.On the Schedule K-1,the partnership shows that Ryan had a $50,000 share of nonrecourse LLC debt at the end of the year.Using the tax basis method,how much is Ryan's ending capital account balance?

​Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?

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. -Entity concept

Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries,as AMT and the foreign tax credit are calculated by the partnership.

​DIP LLC reports ordinary income (before guaranteed payments) of $120,000,rent expense of $40,000,and interest income of $4,000 for the year.In addition,DIP paid guaranteed payments to partner Percy of $20,000.If Percy owns a 40% capital and profits interest,how much income will he report for the year and what is its character?

Syndication costs arise when partnership interests are being marketed to investors.These costs cannot be amortized or deducted.

​The RGBY LLC operating agreement provides that 50% of depreciation expense is allocated to Red,and all remaining income (including the remaining 50% of depreciation) is allocated equally among the four partners.Before guaranteed payments and depreciation,RGBY's net income is $120,000 for the year.RGBY's depreciation expense is $20,000,and it paid a guaranteed payment to Yellow of $8,000.Assume all allocations and payments meet the substantial economic effect rules.After all deductions and special allocations are taken into account,Red is allocated a net of $15,500 from the partnership.

On the formation of a partnership,when might a "disguised sale" occur? How can this treatment be avoided?

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 partnership

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. -Guaranteed payment