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Exam 10: Partnerships: Formation, operation, and Basis

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Question 51

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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?

A) Jenna has a $200,000 tax basis for her partnership interest.
B) Rob recognizes a $50,000 gain on his property transfer.
C) Rob has a $240,000 tax basis for his partnership interest.
D) The partnership has a $160,000 adjusted basis in the property contributed by Jenna.
E) None of the statements is true.

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

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Question 52

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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 the partner received from the partnership.
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) A) and B)
G) A) and E)

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Question 53

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Laura is a real estate developer and owns property that is treated as inventory (not a capital asset)in her business.She contributes a parcel of this land (basis of $15,000)to a partnership,also to be held as inventory.The fair market value of the property is $12,000 at the contribution date.After three years,the partnership sells the land for $10,000.The partnership will recognize a $5,000 ordinary loss on sale of the property.

Rick is a 30% partner in the ROC Partnership.At the beginning of the tax year,Rick's basis in the partnership interest was $60,000,including his share of partnership liabilities.During the current year,ROC reported net ordinary income of $40,000.In addition,ROC distributed $5,000 to each of the partners ($15,000 total) .At the end of the year,Rick's share of partnership liabilities increased by $20,000.Rick's basis in the partnership interest at the end of the year is:

An examination of the RB Partnership's tax books provides the following information for the current year: Rachel is a 30% partner in partnership capital,profits,and losses.Assume the adjusted basis of her partnership interest is $60,000 at the beginning of the year,and she shares in 30% of the partnership's liabilities for basis purposes.

Meagan is a 40% general partner in the calendar year,cash basis MKK Partnership.The partnership received $100,000 income from services and paid the following other amounts: How much will Meagan's adjusted gross income increase as a result of the above items?

George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP,LLC (not a publicly-traded partnership interest).The future profits of the partnership are subject to normal operating risks.George will report ordinary income equal to the fair market value of the profits interest,but the capital interest will not be currently taxed to him.

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases,assume the interest is not sold within two years after the time it is granted to the service 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?

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Which of the following statements is always true regarding accounting methods available to a partnership?

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?

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.She received a $10,000 cash distribution from the partnership during the year,and her share of partnership income is $15,000.If her share of partnership liabilities on the last day of the partnership year is $20,000,her outside basis for her partnership interest at the end of the year is $65,000.

Sharon and Sue are equal partners in the S&S Partnership.On January 1 of the current year,each partner's adjusted basis in S&S was $80,000 (including each partner's $20,000 share of the partnership's $40,000 of liabilities).During the current year,S&S repaid $30,000 of the debt and borrowed $20,000 for which Sharon and Sue are equally liable.In the current year ended December 31,S&S also sustained a net operating loss of $40,000 and earned $10,000 of interest income from investments.If liabilities are shared equally by the partners,on January 1 of the next year how much is each partner's basis in her interest in S&S?

Julie and Kate form an equal partnership during the current year.Julie contributes cash of $160,000,and Kate contributes property (adjusted basis of $90,000,fair market value of $260,000)subject to a nonrecourse liability of $100,000.As a result of these transactions,Kate has a basis in her partnership interest of $40,000.

Sharon contributed property to the newly formed QRST Partnership.The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date.The property was also encumbered by a $120,000 nonrecourse debt,which was transferred to the partnership on that date.Another partner,Rochelle,shares 30% of the partnership income,gain,loss,deduction,and credit.Under IRS regulations,Rochelle's share of the nonrecourse debt for basis purposes is:

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership.An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.

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?

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?