Exam 21: Partnerships

For purposes of determining gain on a current distribution to a partner,a distribution of cash includes relief of a partner's share of partnership liabilities and certain distributions of marketable securities.

Partner Tom transferred property (basis of $20,000;fair market value of $50,000)to the TUV Partnership in exchange for a partnership interest.At a later date,when Tom's outside basis for his partnership interest was $70,000,Tom received a $50,000 cash distribution from the partnership.Which one of the following statements is not true?

Joel and Desmond are forming the JD Partnership.Joel contributes $300,000 cash and Desmond contributes nondepreciable property with an adjusted basis of $80,000 and a fair market value of $330,000.The property is subject to a $30,000 liability,which is also transferred into the partnership and is shared equally by the partners for basis purposes.Joel and Desmond share in all partnership profits equally except for any precontribution gain,which must be allocated according to the statutory rules for built-in gain allocations.

Bradley owns a one-third interest in a liquidating partnership.Immediately before the liquidation,Bradley's basis in the partnership interest is $30,000.The partnership distributes cash of $14,000 and two parcels of land (each with a fair market value of $5,000).Parcel A has a basis of $1,000 to the partnership and Parcel B has a basis of $3,000.Bradley's basis in the two parcels of land is:

For income tax purposes,proportionate and disproportionate distributions from a partnership are treated similarly.

Section 721 provides that no gain or loss is recognized on contribution of property to a partnership in exchange for an interest in the partnership.A disguised sale is an exception to nonrecognition of gain or loss under § 721.

In a proportionate liquidating distribution,UVW Partnership distributes to partner William cash of $25,000,accounts receivable (basis of $10,000 and fair market value of $8,000),and land (basis of $50,000 and fair market value of $60,000).William's basis was $75,000 before the distribution.On the liquidation,William recognizes no gain or loss,and he takes a basis of $10,000 in the accounts receivable,and $50,000 in the land.

Henry contributes property valued at $60,000 (basis $50,000)in exchange for a 25% interest in the HIKE Partnership.If the property is later sold for $80,000,gain of $7,500 will be allocated to Henry.

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

Jamie owns a 40% interest in the JSD LLC.In liquidation of the entity,Jamie receives a proportionate distribution of $20,000 cash,inventory (basis of $12,000 and fair market value of $14,000),and land (basis of $10,000 and fair market value of $30,000).Jamie's basis in the entity immediately before the distribution was $50,000.As a result of the distribution,what is Jamie's basis in the inventory and land,and how much gain or loss does she recognize?

Rhonda contributes land valued at $90,000 in exchange for a 40% interest in the RW Partnership.The adjusted basis of the land is $80,000 and it was subject to a liability of $20,000,which the partnership assumed.RW reported income of $100,000 for the year.If none of the liabilities are repaid by the end of the year,and if all liabilities are shared equally,Rhonda's basis at the end of the year is $108,000.

In the current year,Greg formed an equal partnership with Melvin.Greg contributed land with an adjusted basis of $90,000 and a fair market value of $150,000.Greg also contributed $75,000 cash to the partnership.Melvin contributed land with an adjusted basis of $100,000 and a fair market value of $200,000.The land contributed by Greg was encumbered by a $50,000 nonrecourse debt.The land contributed by Melvin was encumbered by $25,000 of nonrecourse debt.Assume the partners share debt equally.Immediately after the formation,what is the basis of Melvin's partnership interest?

The MOP Partnership is involved in leasing heavy equipment under long-term leases of five years or more.Patsy has an adjusted basis for her partnership interest on January 1 of the current year of $600,000,consisting of the following: During the year,the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patsy.Partnership liabilities were the same at the end of the tax year,and the nonrecourse debt is not "qualified nonrecourse debt." If she owns a 60% share of partnership profits,capital,and losses,and is a material participant in the partnership,how much of her share of the operating loss can Patsy deduct? What Code provisions could cause a suspension of the loss?

Susan and Sarah form a partnership by each making contributions of $30,000 cash to partnership capital.The partnership purchases an asset for $200,000,using the cash and financing the rest with a $140,000 recourse note.Susan is allocated 75% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses.After that date,the profits and losses are shared equally between the two partners.The partners expect the partnership to have losses for the first three years of operations and profits thereafter.How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses in determining the partnership's net income (loss).This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Sam receives a proportionate nonliquidating distribution when the basis of his partnership interest is $40,000.He received a cash distribution of $25,000 and a property distribution (basis of $10,000 and fair market value of $12,000).In addition,Sam's share of partnership liabilities was reduced by $20,000 during the year.How much gain or loss does Sam recognize;what is his basis in the property he received;and what is his remaining basis in the partnership interest?

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

During the current year,John and Ashley form the JA Partnership and agree to share profits and losses equally.Ashley contributes land with a fair market value of $80,000 (subject to a $30,000 nonrecourse mortgage).On the contribution date,Ashley's adjusted basis in the land is $40,000.Immediately after formation,Ashley's partnership outside basis is $25,000.

The MNO Partnership,a calendar year taxpayer,was formed on July 1 of the current year and started business on October 1.MNO incurred $30,000 in startup costs.MNO may deduct $5,000 and amortize the remaining $25,000 over 120 months starting in July.

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?