Exam 21: Partnerships

The LMO Partnership distributed $30,000 cash to Laura in a proportionate,nonliquidating distribution.Laura's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution,Laura's basis is reduced to ($5,000)(negative)and she recognizes no gain or loss.

Tim and Tom formed the equal T&T Partnership during the current year,with Tim contributing $200,000 in cash and Tom contributing land (basis of $100,000,fair market value of $140,000)and inventory (basis of $40,000,fair market value of $60,000).Tom recognizes a $60,000 gain on the contribution and his basis in his partnership interest is $200,000.

Marty receives a proportionate nonliquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000;fair market value of $23,000).How much gain or loss does Marty recognize,and what is her basis in the distributed property and in her partnership interest following the distribution?

Paul sells one parcel of land (basis of $200,000)for its fair market value of $250,000 to a partnership in which he owns a 75% capital interest.Paul held the land for investment purposes.The partnership is in the real estate development business,and will build residential housing (for sale to customers)on the land.Paul will recognize:

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

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

A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts.

JLK Partnership incurred $15,000 of organizational costs and $60,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs,and the remaining costs ($10,000 of organizational costs and $55,000 of startup costs)may be amortized over 180 months.

Kaylyn is a 40% partner in the KKM Partnership.During the current year,KKM reported gross receipts of $160,000 and a charitable contribution of $10,000.The partnership paid office expenses of $100,000.In addition,KKM distributed $10,000 each to partners Kaylyn and Kristie,and the partnership paid partner Megan $20,000 for administrative services.Kaylyn reports the following income from KKM during the current tax year:

A distribution from a partnership to a partner is not generally taxable to the partner.

Maria owns a 60% interest in the KLM Partnership.Four years ago her father gave her a parcel of land.The gift basis of the land to Maria is $60,000.In the current year,Maria had still not figured out how to use the land for her own personal or business use;consequently,she sold the land to the partnership for $75,000.The partnership immediately started using the land as a parking lot for its employees.Maria's recognized gain of $15,000 on the sale is capital-not ordinary.

Meagan is a 40% general partner in the calendar year,cash basis MKK Partnership.The partnership received $100,000 income from services and paid the following other amounts: How much will Meagan's adjusted gross income increase as a result of the above items?

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.

Fern,Inc. ,Ivy Inc. ,and Jason formed a general partnership,each contributing equally.Fern,Inc.files its tax return on a July 1 - June 30 fiscal year;Ivy Inc.files on a September 1 - August 31 fiscal year;and Jason is a calendar year taxpayer.Which of the following statements is true regarding the taxable year the partnership can choose?

Maggie,a partner in the Magpie partnership,received a proportionate nonliquidating distribution of $20,000 cash,unrealized receivables with a basis of $0 and a fair market value of $30,000,and land with a basis of $25,000 and a fair market value of $20,000.Her basis in the partnership interest immediately before the distributions was $30,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $20,000 respectively.

Tom and William are equal partners in the TW Partnership.Just before TW liquidated,Tom's capital account balance was $50,000 and William's capital account balance was $30,000.To meet the substantial economic effect requirements,any liquidating cash distribution must be allocated equally between the partners.

In the current year,the CAR Partnership received revenues of $200,000 and paid the following amounts: $120,000 in rent,utilities,and salaries;a $20,000 guaranteed payment to partner Ronald;$12,000 to partner Albert for consulting services;and a $15,000 distribution to 25% partner Celia.In addition,the partnership realized a $10,000 net long-term capital gain.Celia's basis in her partnership interest was $50,000 at the beginning of the year,and included her $20,000 share of partnership liabilities.At the end of the year,her share of partnership liabilities was $15,000.

Which of the following partnership owners is personally liable for the entity's debts to general creditors?

Guaranteed payments from a partnership to a partner are treated as "W-2 Wages" for purposes of the § 199 deduction.

PaulCo,DavidCo,and Ralph form a partnership with cash contributions of $80,000,$50,000 and $30,000,respectively,and agree to share profits and losses in the ratio of their original cash contributions.PaulCo uses a January 31 fiscal year-end,while DavidCo and Ralph use a November 30 and December 31 fiscal year-end,respectively.Since PaulCo is a majority partner,this partnership will use a January 31 year-end.