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Exam 21: Partnerships

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Question 91

True/False

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

A) True
B) False

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Question 92

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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 the least aggregate deferral method to determine its taxable year-end.

A) True
B) False

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Question 93

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Beth has an outside basis of $100,000 in the BTDE 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 an antique desk (not inventory) which has an inside basis and fair market value of $0 and $5,000,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 desk?

Partners' capital accounts should be determined using the same method on Form 1065 Schedule L,Form 1065 Schedule M-2,and the Schedules K-1 prepared for the partners.

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

Connie owns a one-third capital and profits interest in the calendar-year CDB Partnership.Her adjusted basis for her partnership interest was $120,000 when she received a proportionate nonliquidating distribution of the following assets: Partnership's Basis in Asset Asset's Fair Market Value Cash Land held for investment $140,000 30,000 $140,000 60,000 ​ a.Calculate Connie's recognized gain or loss on the distribution,if any. b.Calculate Connie's basis in the land received. c.Calculate Connie's basis for her partnership interest after the distribution.

A gain will only arise on a distribution from a partnership 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.

PaulCo,DavidCo,and Sean form a partnership with cash contributions of $80,000,$50,000 and $30,000,respectively,and agree to share profits and losses in the ratio of their original cash contributions.PaulCo uses a January 31 fiscal year-end,while DavidCo and Sean use a November 30 and December 31 year-end,respectively.The partnership must use the least aggregate deferral method to determine its year end.

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. -Required taxable year

In the current year,the CAR Partnership received revenues of $400,000 and paid the following amounts: $160,000 in rent,utilities,and salaries;a $40,000 guaranteed payment to partner Ryan;$20,000 to partner Amy for consulting services;and a $40,000 distribution to 25% partner Cameron.In addition,the partnership realized a $12,000 net long-term capital gain.Cameron's basis in his partnership interest was $60,000 at the beginning of the year,and included his $25,000 share of partnership liabilities.At the end of the year,his share of partnership liabilities was $15,000. a.How much income must Cameron report for the tax year? b.What is Cameron's basis in the partnership interest at the end of the year?

Paul sells one parcel of land (basis of $100,000) for its fair market value of $160,000 to a partnership in which he owns a 60% capital interest.Paul held the land for investment purposes.The partnership is in the real estate development business,and will build residential housing (for sale to customers) on the land.Paul will recognize:

Zach's partnership interest basis is $100,000.Zach receives a proportionate,liquidating distribution from a liquidating partnership of $50,000 cash and inventory having a basis of $20,000 to the partnership and a fair market value of $30,000.Zach assigns a basis of $20,000 to the inventory and recognizes a $30,000 loss.

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. -Check the box regulations

The ELF Partnership distributed $20,000 cash to Emma in a proportionate,nonliquidating distribution.Emma's basis in her partnership interest was $12,000 immediately before the distribution.As a result of the distribution,Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

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. -Organizational costs

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

A partnership has accounts receivable with a basis of $0 and a fair market value of $30,000 and depreciation recapture potential of $20,000.All other assets of the partnership are either cash,capital assets,or § 1231 assets.If a purchaser acquires a 40% interest in the partnership from another partner,the selling partner will be required to recognize ordinary income of $12,000.

A distribution can be "proportionate" (as defined for purposes of Subchapter K) even if only one partner receives assets from the partnership.

In a limited liability company,all members are protected from all debts of the partnership unless they personally guaranteed the debt.

Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?