Exam 21: Partnerships

ABC,LLC is equally-owned by three corporations.Two corporations have June 30 fiscal year ends,the third is a calendar-year taxpayer.ABC will use a June 30 year end under the majority partners' tax year rule because more than 50% of the partnership's capital and profits is owned by partners with the same taxable year.

William's basis in the WAM Partnership interest was $100,000 just before he received a proportionate liquidating distribution consisting of investment land (basis of $30,000,fair market value $40,000),and inventory (basis of $30,000,fair market value $70,000).After the distribution,William's recognized gain or loss and his basis in the land and inventory are:

Nick sells his 25% interest in the LMNO Partnership to new partner Nancy for $50,000.The partnership's assets consist of cash ($100,000),land (basis of $60,000;fair market value of $40,000),and inventory (basis of $50,000;fair market value of $60,000).Nick's basis in his partnership interest was $52,500.On the sale,Nick will recognize ordinary income of $2,500 and a capital loss of $5,000.

Simone is a calendar year cash basis taxpayer.She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end.The partnership's operating income (after deducting guaranteed payments)was $72,000 ($6,000 per month)and $96,000 ($8,000 per month),respectively,for the partnership tax years ended September 30,2010 and 2011.The partnership paid guaranteed payments to Simone of $1,000 and $2,000 per month during the fiscal years ended September 30,2010 and 2011.How much will Simone's adjusted gross income be increased by these partnership items for her tax year ended December 31,2010?

Harry and Sally are considering forming a partnership.Both taxpayers use the calendar year and are cash basis taxpayers.The partnership will not be a tax shelter.The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting.Also,the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership.

Surina sells her 25% partnership interest to Katie for $50,000 on July 1 of the current tax year.Surina's basis in her partnership interest at the beginning of the year was $40,000,including a $15,000 share of partnership liabilities.The partnership's income for the entire year was $100,000,and Surina's share of partnership debt was $10,000 as of the date she sold the partnership interest.Assume the partnership has no hot assets and that its income is earned evenly throughout the year.Surina recognizes a gain of $2,500 on the sale.

A partnership's allocations of income and deductions to the partners are not required to be proportionate to the partners' percentage ownership of partnership capital,provided the allocations meet the substantial economic effect tests.

Simon is a 30% owner (member)of Real Properties R Us,LLC (RPRU).During the current tax year,RPRU reported a loss from rental real estate activities of ($150,000)which is treated as a passive loss.Simon is a material participant in RPRU.His modified AGI is $122,000.In addition,Simon has passive income from other sources of $15,000.Assuming Simon meets the basis and at risk limitations,what amount of the RPRU loss may Simon deduct under the passive loss rules?

Julie contributed fully depreciated ($0 basis)property valued at $20,000 to the JK Partnership in exchange for a 50% interest in partnership capital and profits.During the first year of partnership operations,JK had net taxable income of $50,000.The partnership distributed $20,000 cash to Julie.Julie's adjusted basis (outside basis)for her partnership interest at year-end is:

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.

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

René is a 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).René 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 René deduct on her current year's tax return?

If the partnership properly makes an election for treatment of a specific tax item,the partner is bound by that treatment.

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.

Kevin,Chuck,and Greg contributed assets to form the equal KCG Partnership.Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000).Chuck contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000).Greg contributed cash of $60,000 and a fully depreciated property ($0 basis)valued at $40,000.Which of the following tax treatments is not correct?

Partner Bob purchased his partnership interest for $10,000.If Bob sells the partnership interest after three years,his gain or loss is determined by reference to this unadjusted $10,000 cost basis.

Roger is a 30% partner in the ROC Partnership.At the beginning of the tax year,Roger's basis in the partnership interest was $60,000,including his share of partnership liabilities.During the current year,ROC reported net ordinary income of $40,000.In addition,ROC distributed $5,000 to each of the partners ($15,000 total).At the end of the year,Roger's share of partnership liabilities increased by $20,000.Roger's basis in the partnership interest at the end of the year is:

In a proportionate liquidating distribution in which the partnership is liquidated,Greg received cash of $20,000,inventory (basis of $2,000,fair market value of $3,000),and a capital asset (basis and fair market value of $4,000).Immediately before the distribution,Greg's basis in the partnership interest was $30,000.

A general partnership is similar to a limited liability company in that none of the partners or members of either type of entity is personally liable for entity debts.

Items that must be passed through separately from a partnership to the partners include AMT adjustments and preferences but not taxes paid to foreign countries.