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Exam 9: Forming and Operating Partnerships

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Question 21

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Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $20,000 ordinary business loss allocation.His tax basis in ABC at the beginning of ABC's most recent tax year was $10,000.Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year,Clint noted that his share of ABC partnership debt changed as follows: recourse debt increased from $0 to $2,000,qualified nonrecourse debt increased from $0 to $3,000,and nonrecourse debt increased from $0 to $3,000.Finally,the Schedule K-1 Clint recently received from ABC reflected a $1,000 cash contribution he made to ABC during the year. Clint is not a material participant in ABC partnership,and he received $10,000 of passive income from another investment during the same year he received the loss allocation from ABC.How much of the $20,000 loss from ABC can Clint deduct currently,and how much of the loss is suspended because of the tax basis,the at-risk,and the passive activity loss limitations?

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The amount of loss Clint can deduct curr...

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Question 22

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In what order should the tests to determine a partnership's year end be applied?

A) majority interest taxable year - least aggregate deferral - principal partners test.
B) principal partners test - majority interest taxable year - least aggregate deferral.
C) principal partners test - least aggregate deferral - majority interest taxable year.
D) majority interest taxable year - principal partners test - least aggregate deferral.
E) None of the choices are correct.

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

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Question 23

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Sarah,Sue,and AS Inc.formed a partnership on May 1,20X9 called SSAS,LP.Now that the partnership is formed,they must determine its appropriate year-end.Sarah has a 30% profits and capital interest while Sue has a 35% profits and capital interest.Both Sarah and Sue have calendar year-ends.AS Inc.holds the remaining profits and capital interest in the LP,and it has a September 30 year-end.What tax year-end must SSAS,LP use for 20X9 and which test or rule requires this year-end?

On March 15,20X9,Troy,Peter,and Sarah formed Picture Perfect General Partnership.This partnership was created to sell a variety of cameras,picture frames,and other photography accessories.The following items were contributed by each partner in exchange for a 1/3 capital and profits interest: • Troy - cash of $3,000,inventory with a FMV and tax basis $5,000,and a building with a FMV of $8,000 and adjusted basis of $10,000.Additionally,the building is secured by a $10,000 mortgage. • Peter - cash of $5,000,accounts payable with a FMV and tax basis of $19,000,and land with a FMV and tax basis of $20,000. • Sarah - cash of $2,000,accounts receivable with a FMV and tax basis of $1,000,and equipment with a FMV of $26,000 and adjusted basis of $4,000.Also,the equipment is secured by a $23,000 note payable. What is the partnership's inside basis in each asset? How much gain or loss must Picture Perfect recognize? Prepare Picture Perfect's balance sheet reflecting the partners' capital accounts on both a tax basis and 704(b)/FMV basis.

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

Which person would generally be treated as a material participant in an activity?

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Which of the following would not be classified as a separately-stated item?

A partner's self-employment earnings (loss) may be affected by her share of ordinary business income (loss) and any guaranteed payments she receives.The impact of these amounts typically depends on the status of the partner.Which of the following statements correctly describes the effect these items have on the partner's self-employment earnings (loss) ?

Which of the following entities is not considered a flow-through entity?

Greg,a 40% partner in GSS Partnership,contributed land to the partnership in exchange for his partnership interest when the partnership was formed.At the time,his basis in the land was $30,000 and its FMV was $133,000.Three years after the partnership was formed,GSS Partnership decided to sell the land to an unrelated party for $150,000.When the land is sold,how much of the gain should be allocated to each partner of GSS Partnership if Sam and Steve are each 30% partners?

Kim received a 1/3 profits and capital interest in Bright Line,LLC in exchange for legal services she provided.In addition to her share of partnership profits or losses,she receives a $30,000 guaranteed payment each year for ongoing services she provides to the LLC.For X4,Bright Line reported the following revenues and expenses: Sales - $150,000,Cost of Goods Sold - $90,000,Depreciation Expense - $45,000,Long-Term Capital Gains - $15,000,Qualified Dividends - $6,000,and Municipal Bond Interest - $3,000.How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

John,a limited partner of Candy Apple,LP,is allocated $30,000 of ordinary business loss from the partnership.Before the loss allocation,his tax basis is $20,000 and at-risk amount is $10,000.John also has ordinary business income of $20,000 from Sweet Pea,LP as a general partner and ordinary business income of $5,000 from Red Tomato,as a limited partner.How much of the $30,000 loss from Candy Apple can John deduct currently?

In each of the independent scenarios below,how does the partner or partnership determine its holding period in the property received? a.A partner contributes property in exchange for a partnership interest b.The partnership receives contributed property c.A partner contributes services in exchange for a partnership interest d.A partner purchases a partnership interest from an existing partner

Tim,a real estate investor,Ken,a dealer in securities,and Hardware,Inc.,a retail lumber store form a partnership called HKT,LP.HKT is in the home building business.Tim recently purchased his interest in HKT while the other partners purchased their interest several years ago.During X3,HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes.Which of the following statements best represents how their portion of the gain should be reported to the partner?

Jay has a tax basis of $14,000 in his partnership interest at the beginning of the partnership tax year.The following amounts of partnership debt were allocated to Jay and are included in his beginning of the year tax basis: (1) recourse debt - $3,000,(2) qualified nonrecourse debt - $1,000,and (3) nonrecourse debt - $500.There were no changes to the debt allocated to Jay during the tax year.If Jay is allocated a $15,000 loss for the current year,how much of the loss will be suspended under the tax basis and at-risk limitations?

What type of debt is not included in calculating a partner's at-risk amount?

Income earned by flow-through entities is usually taxed only once at the entity level.

What general accounting methods may be used by a partnership and how and by whom are they selected?