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Exam 21: Partnerships

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Question 41

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Anthony's basis in the WAM Partnership interest was $200,000 just before he received a proportionate liquidating distribution consisting of investment land (basis of $90,000, fair market value of $100,000) , and inventory (basis of $30,000, fair market value of $70,000) .After the distribution, Anthony's recognized gain or loss and his basis in the land and inventory are:

A) $80,000 loss; $90,000 (land) ; $30,000 (inventory) .
B) $70,000 loss; $100,000 (land) ; $30,000 (inventory) .
C) $30,000 loss; $100,000 (land) ; $70,000 (inventory) .
D) $0 gain or loss; $170,000 (land) ; $30,000 (inventory) .
E) None of the above.

F) A) and E)
G) A) and C)

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Question 42

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BCD Partners reported the following items on the partnership's Schedule K: ordinary income, $72,000; interest income, $5,000; long-term capital gain, $8,000; charitable contributions, $3,000; post-1986 depreciation adjustment, $4,000; and cash distributions to partners, $20,000.How much will BCD show as net income (loss) on its Analysis of Income (Loss) ?

A) $58,000.
B) $72,000.
C) $78,000.
D) $82,000.
E) $85,000.

F) B) and E)
G) A) and D)

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Question 43

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The LN partnership reported the following items of income and deduction during the current tax year: revenues, $300,000; cost of goods sold, $180,000; tax-exempt interest income, $2,000; salaries to employees, $80,000; and long-term capital gain, $10,000.In addition, the partnership distributed $20,000 of cash to 50% partner Nina and $10,000 of cash to 50% partner Len.What is Nina's share of ordinary partnership income and separately stated items?

Each partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are always the same.

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.

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

Josh has a 25% capital and profits interest in the calendar-year GDJ Partnership.His adjusted basis for his partnership interest on October 15 of the current year is $300,000.On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh.

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.

The sum of the partner's ending basis on Schedule K-1 equals the total of the partner's ending capital account on Schedule L.

A gain will only arise on a distribution of cash that exceeds the partner's basis in the partnership interest.For this purpose, only cash, checks, and credit card charges are treated as cash.

Beth has an outside basis of $100,000 in the BBDE Partnership as of December 31 of the current year.On that date the partnership liquidates and distributes to Beth a proportionate distribution of $50,000 cash and inventory with an inside basis to the partnership of $10,000 and a fair market value of $16,000.In addition, Beth receives a computer (not inventory) which has an inside basis and fair market value of $0 and $3,000, respectively.None of the distribution is for partnership goodwill.How much gain or loss will Beth recognize on the distribution, and what basis will she take in the computer?

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 property distribution from a partnership to a partner is generally taxable to the partner.

Tim, Al, and Pat contributed assets to form the equal TAP Partnership.Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000) .Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000) .Pat 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?

Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of $42,000 and a value of $100,000.Kristen and Morgan each have a basis of $100,000 in their partnership interests.

On January 1 of the current year, Jenna and Rob form an equal partnership.Jenna makes a cash contribution of $80,000 and a property contribution (adjusted basis of $120,000; fair market value of $160,000) in exchange for her interest in the partnership.Rob contributes property (adjusted basis of $190,000; fair market value of $240,000) in exchange for his partnership interest.Which of the following statements is true concerning the income tax results of this partnership formation?

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.

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.

The MOP Partnership is involved in leasing heavy equipment under long-term leases of five years or more.Patricia 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 Patricia.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 Patricia deduct? What Code provisions could cause a suspension of the loss?

Cassandra is a 10% limited partner in C&C, Ltd.Her basis in the interest is $60,000 before loss allocations, including her $30,000 share of the partnership's nonrecourse debt.(This debt is not qualified nonrecourse financing.) Cassandra is also a 10% limited partner in MNOP, in which her basis is $30,000.Cassandra is allocated an $80,000 loss from C&C, and $20,000 of income from MNOP.How much of the loss from C&C may Cassandra deduct? Under what Code provisions are the remaining losses suspended?