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Exam 21: Partnerships

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Question 71

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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 B)

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Question 72

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Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

A) Increased by contributions the partner made to the partnership.
B) Decreased by the amount of guaranteed payments shown on the partner's Schedule K-1.
C) Increased by the partner's share of tax-exempt income.
D) Decreased by any decrease in the partner's share of partnership liabilities.
E) Increased by the partner's share of separately stated income items.

F) C) and D)
G) A) and B)

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Question 73

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A partnership cannot use the cash method of accounting if one of the partners is a C corporation.

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Partner's capital account

Randy owns a one-fourth capital and profits interest in the calendar-year RUSR Partnership.His adjusted basis for his partnership interest was $200,000 when he received a proportionate nonliquidating distribution of the following assets: Partnership's Basis in Asset Asset's Fair Market Value Cash Inventory $120,000 60,000 $120,000 90,000 ​ a.Calculate Randy's recognized gain or loss on the distribution,if any.Explain. b.Calculate Randy's basis in the inventory received. c.Calculate Randy's basis for his partnership interest after the distribution.

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms.b.Partner's percentage allocation of current operating income.c.Might affect any two partners' tax liabilities in different ways.d.Brokerage and registration fees incurred for promoting and marketing partnership interests.e.Transfer of asset to partnership followed by immediate distribution of cash to partner.f.Must have at least one general and one limited partner.g.All partners are jointly and severally liable for entity debts.h.Theory treating the partner and partnership as separate economic units.i.Partner's basis in partnership interest after tax-free contribution of asset to partnership.j.Partnership's basis in asset after tax-free contribution of asset to partnership.k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.m.Allows many unincorporated entities to select their Federal tax status.n.No correct match provided. -Disguised sale

Generally,no gain is recognized on a proportionate liquidating or nonliquidating distribution of non-cash property even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

What are "syndication costs" and how are they treated for tax purposes?

Section 721 provides that,in general,no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

At the beginning of the year,Elsie's basis in the E&G Partnership interest is $90,000.She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash,unrealized accounts receivable (basis of $0,fair market value $40,000) ,and land (basis of $30,000,fair market value of $50,000) .After the distribution,Elsie's bases in the accounts receivable,land,and partnership interest are:

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Inside basis

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000.His basis in his partnership interest was $15,000 immediately before the distribution.Carlos assigns a basis of $7,000 to the inventory,and recognizes no gain or loss.

Match each of the following statements with the terms below that provide the best definition. a.Adjusted basis of each partnership asset.b.Operating expenses incurred after entity is formed but before it begins doing business.c.Each partner's basis in the partnership.d.Reconciles book income to "taxable income." e.Tax accounting election made by partnership.f.Tax accounting calculation made by partner.g.Tax accounting election made by partner.h.Does not include liabilities.i.Designed to prevent excessive deferral of taxation of partnership income.j.Amount that may be received by partner for performance of services for the partnership.k.Computation that determines the way recourse debt is shared.l.Will eventually be allocated to partner making tax-free property contribution to partnership.m.Partner's share of partnership items.n.Must generally be satisfied by any allocation to the partners.o.Justification for a tax year other than the required taxable year.p.No correct match is provided. -Guaranteed payment

On the formation of a partnership,when might a "disguised sale" occur? How can this treatment be avoided?

If a partnership earns tax-exempt income,the income should not affect the partners' bases in their partnership interests.Do you agree with this statement? Explain.

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

In a proportionate nonliquidating distribution,cash is deemed to be distributed first,followed by capital and § 1231 assets,and last,unrealized receivables and inventory.

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

Samuel is the managing general partner of STU,in which he owns a 25% interest.For the year,STU reported ordinary income of $400,000 (after deducting all guaranteed payments) .In addition,the LLC reported interest income of $12,000.Samuel received a guaranteed payment of $120,000 for services he performed for STU.How much income from self-employment did Samuel earn from STU?