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Exam 21: Partnerships

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Question 41

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

A) True
B) False

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Question 42

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​Which one of the following is an example of a special allocation of partnership income?

A) ​The partnership's capital gains and losses are shown separately on Schedule K-1.
B) ​Distributions from the partnership to the partner are shown on Schedule K-1 line 20.
C) ​The partnership agreement provides that Marcus will report all charitable contributions rather than his 20% distributive share.
D) ​The Schedule K-1 reports each partner's share of the information they need in order to calculate the § 199 deduction.

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

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Question 43

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What is the difference between a partner's basis in the partnership interest and a partner's § 704(b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods,treatment of research and experimental costs,calculation of the § 199 deduction,and the § 754 election.

​DDP Partnership reported gross income from operations of $125,000,a long-term capital gain of $5,000,a short-term capital loss of $2,000,and a charitable contribution of $5,000.On its Schedule K,the partnership reports ordinary business income of $120,000,a long-term capital gain of $5,000 and a short-term capital loss of $2,000. ​

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 $50,000.The partnership immediately started using the land as a parking lot for its employees.Maria may recognize her $10,000 loss on the sale.

The sum of the partners' ending basis amounts on all Schedules K-1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

Harry's basis in his partnership interest was $10,000 at the beginning of the tax year.For the year,his share of the partnership's loss was $8,000,and he also received a distribution of $4,000.Harry can deduct an $8,000 loss,and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.

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

Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations,they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership.On July 1 of the current year,the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations,BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Binita's adjusted basis (outside basis) for her partnership interest at year-end is:

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.

In a limited liability company,all members may participate in management (the operating agreement cannot limit participation) and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

Carli contributes land to the newly formed CD Partnership in exchange for a 30% interest.The land has an adjusted basis and fair market value of $300,000 and is subject to a liability of $100,000,which the partnership assumes.None of this liability is repaid at year-end.At the end of the year,the partnership has trade accounts payable of $20,000.Assume all liabilities are allocated proportionately to the partners.Total partnership income for the year is $400,000.What is Carli's basis in her partnership interest at the end of the year?

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 in proportion to those ending capital account balances.

ACME Partnership has had the following gross receipts since its formation: $1.8 million in 2014,$4.6 million in 2015,$8.8 million in 2016,$1.6 million in 2017,and $10 million in 2018.Partner Meile,Inc.is a Subchapter C corporation.In what tax years must ACME use the accrual method?

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

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?

Fern,Inc.,Ivy,Inc.,and Jeremy formed a general partnership.Fern owns a 50% interest and Ivy and Jeremy each own 25% interests.Fern,Inc.files its tax return on an October 31 year-end; Ivy,Inc.,files with a May 31 year-end,and Jeremy is a calendar year taxpayer.Which of the following statements is true regarding the taxable year the partnership can choose?

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.