Exam 10: Partnership Taxation

On July 1, 2014, Bertram acquired a 25 percent interest in Sycamore Company, a partnership, by contributing property with an adjusted basis of $7,000 and a fair market value of $12,000. The property was subject to a mortgage of $8,000, which was assumed by Sycamore Company. What is Bertram's basis in his partnership interest in Sycamore Company immediately after the partnership contribution?

Losses on transactions between a partnership and its partners are always disallowed.

A partnership may deduct a single personal exemption in calculating ordinary taxable income or loss.

Michael invests in Buxus Interests, a partnership. Michael's capital contribution to the partnership consists of $10,000 cash and equipment with an adjusted basis of $120,000 (fair market value of $150,000) subject to a nonrecourse liability of $60,000. a.Calculate the amount that Michael is at-risk in the activity after making the above contribution? b.If Michael's share of the partnership loss in the year after he makes the contribution is $150,000, how much of the loss may be deducted in that year (before considering the limitations on passive losses)? Assume the partnership had no other transactions. c.If Michael has any nondeductible loss in part b, what may Michael do with the nondeductible loss?

A partnership generally must adopt the same tax year as its majority partners.

Debbie and Betty operate the D & B partnership. Betty, a 50 percent partner, receives a guaranteed payment of $10,000 for her services in operating the partnership. The partnership has income before the guaranteed payment of $5,000. What is the taxable income Debbie and Betty must each report from the partnership for the year? Debbie should report income of $__________. Betty should report income of $__________.

If a partner has a more than 50 percent interest in a partnership, a capital gain resulting from the sale of property to the partnership will be taxed as ordinary income to the partner, provided the property is not a capital asset to the partnership.

Loretta contributes property to a partnership in exchange for a 25 percent partnership interest. The property contributed has a fair market value of $45,000 and a basis of $35,000 on the date of the contribution to the partnership. In addition, Loretta receives a 10 percent partnership interest, valued at $18,000, in exchange for services rendered to the partnership. What is Loretta's basis in her partnership interest, immediately after these transactions?

Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLP. a. Was a partnership formed during the first year? b. If a partnership was formed, how much income will the partnership pay tax on? c. For the second year, do they need to file a partnership tax return?

The "at-risk" rule acts to prevent tax shelters from generating large losses for their investors while exposing them to little personal risk.

Owen owns 60 percent of the Big Time partnership. He sells to the partnership a machine for $70,000 that has a $45,000 basis. What would the taxable income be for Owen and what is the partnership's basis in the machine?

Which of the following liabilities would be considered nonrecourse?

J. Bean and D. Counter formed a partnership. During the current year, the partnership had the following income and expenses: a. Calculate the net ordinary income. b. List all of the other items that need to be separately reported. c. If the partnership is on a calendar year tax basis, when is the partnership tax return due?

Jordan files his income tax return on a calendar-year basis. He is the principal partner of a partnership reporting on a June 30 fiscal year end basis. Jordan's share of the partnership's ordinary income was $24,000 for the fiscal year ended June 30, 2014, and $72,000 for the fiscal year ended June 30, 2015. How much should Jordan report on his 2014 individual income tax return as his share of taxable income from the partnership?

Which of the following is a disadvantage of an LLC?

For the following separate, independent situations indicate with a "Yes" if a partnership return needs to be filed. Mark with a "No" if a partnership return is not required. a. Tony and Gina form a joint venture to import goods from South Korea. b. Nancy decided to start her own private investigative business. c. Uncle Pennybag's estate assets are pooled together until they can be distributedto the beneficiaries. d. Howie, Dewey, and Cheatem form an LLC. e. Flora, Fauna, and Merryweather start a child care business. No official documentsare drawn up.

Please answer the following questions: a.What form is used to report income and expenses from a partnership? b.If a partner's basis at the beginning of the year is $1,000 and the partnership allocates $7,000 of loss to the partner: how much of the loss is deductible in the current year; what is his new basis in the partnership; and what happens to any excess loss not deducted? c.What is the exemption amount for a partnership?

For tax purposes, in computing the ordinary income of a partnership, a deduction is allowed for:

Limited liability companies may operate in more than one state.

If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.