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Exam 14: Partnerships and Limited Liability Entities

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Question 51

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Match each of the following statements with the numbered 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.Partnership in which partners are liable only for any partner's malpractice. e.Amount that might be reported on either form 1065, page 1 or, on Schedule K. f.Transfer of asset to partnership followed by immediate distribution of cash to partner. g.Must have at least one general and one limited partner. h.Long-term capital gain might be recharacterized as ordinary income.i.All partners are jointly and severally liable for entity debts. j.Theory treating the partner and partnership as separate economic units. k.Partner's basis in partnership interest after tax-free contribution of asset to partnership.l.Partnership's basis in asset after tax-free contribution of asset to partnership. m.One way to calculate a partner's economic interest in the partnership.n.Owners are members. o.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.p.Participates in management. q.Not liable for entity debts. r.No correct match provided. -Separately stated item

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Question 52

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Allison is a 40% partner in the BAM Partnership.At the beginning of the tax year, her basis in the partnership interest was $100,000, including her share of partnership liabilities.During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners) .In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee.At the end of the year, Allison's share of partnership liabilities decreased by $10,000.Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:

A) $2,000.
B) $50,000.
C) $58,000.
D) $70,000.

E) B) and C)
F) A) and C)

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Question 53

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Kristie is a 30% partner in the KKM Partnership.During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000.The partnership paid office expenses of $80,000.In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and paid partner Kaylyn $20,000 for administrative services.Kristie reports the following income from KKM during the current tax year.

Julie and Kate form an equal partnership during the current year.Julie contributes cash of $200,000, and Kate contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $60,000.As a result of these transactions, Kate has a basis in her partnership interest of $120,000.

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.Theory under which a partnership's recourse debt is shared among the partners. 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. -Schedule M-1

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.Theory under which a partnership's recourse debt is shared among the partners. 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. -Economic risk of loss

Which of the following is an election or calculation made by the partner rather than the partnership?

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.Theory under which a partnership's recourse debt is shared among the partners. 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. -Precontribution gain

Gina is a single taxpayer and an active partner in the GMA LLC.Gina's Schedule K-1 reflects a $20,000 ordinary income share, $2,000 of interest income, and a $10,000 guaranteed payment for services.Gina's self-employment income from other sources and modified adjusted gross income is about $300,000.With respect to the income from the LLC, Gina is subject to the 0.9% additional Medicare tax on $30,000 and the 3.8% net investment income tax of $2,000.

Match each of the following statements with the numbered 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.Partnership in which partners are liable only for any partner's malpractice. e.Amount that might be reported on either form 1065, page 1 or, on Schedule K. f.Transfer of asset to partnership followed by immediate distribution of cash to partner. g.Must have at least one general and one limited partner. h.Long-term capital gain might be recharacterized as ordinary income.i.All partners are jointly and severally liable for entity debts. j.Theory treating the partner and partnership as separate economic units. k.Partner's basis in partnership interest after tax-free contribution of asset to partnership.l.Partnership's basis in asset after tax-free contribution of asset to partnership. m.One way to calculate a partner's economic interest in the partnership.n.Owners are members. o.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.p.Participates in management. q.Not liable for entity debts. r.No correct match provided. -Profits interest

Molly is a 30% partner in the MAP Partnership.During the current tax year, the partnership reported ordinary income of $200,000 before any permitted deduction for guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $20,000 to Molly and made guaranteed payments to partners Molly, Amber, and Pat of $20,000 each ($60,000 total guaranteed payments) .How much will Molly's adjusted gross income increase as a result of these items?

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.

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

In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities and $20,000 as a distribution to partner Olivia.In addition, the partnership earned $6,000 of long- term capital gains during the year.Partner Donald owns a 50% interest in the partnership.How much income must Donald report for the tax year?

In the current year, the DOE LLC received revenues of $200,000 and paid the following amounts: $50,000 of business expenses (rent, utilities, wages, depreciation, etc.), a $40,000 guaranteed payment (for services) to 50% member Dave, $10,000 to member Ethan for consulting services, and $10,000 as a distribution to member Olivia.In addition, the LLC earned $2,000 of tax-exempt interest income during the year.Dave is the managing member of the LLC.His basis in his LLC interest was $50,000 at the beginning of the year, which includes a $12,000 share of LLC liabilities.At the end of the year, his share of the LLC's liabilities was $20,000. a.How much income must Dave report for the tax year and what is the character of the income? b.What is Dave's basis in his LLC interest at the end of the tax year? c.On what income will Dave's self-employment tax be calculated? d.What is the maximum amount Dave might be able to deduct for this business under § 199A? What additional information would Dave need to make this calculation?

Match each of the following statements with the numbered 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.Partnership in which partners are liable only for any partner's malpractice. e.Amount that might be reported on either form 1065, page 1 or, on Schedule K. f.Transfer of asset to partnership followed by immediate distribution of cash to partner. g.Must have at least one general and one limited partner. h.Long-term capital gain might be recharacterized as ordinary income.i.All partners are jointly and severally liable for entity debts. j.Theory treating the partner and partnership as separate economic units. k.Partner's basis in partnership interest after tax-free contribution of asset to partnership.l.Partnership's basis in asset after tax-free contribution of asset to partnership. m.One way to calculate a partner's economic interest in the partnership.n.Owners are members. o.Theory treating the partnership as a collection of taxpayers joined in an agency relationship.p.Participates in management. q.Not liable for entity debts. r.No correct match provided. -General partnership

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.

The LN partnership reported the following items of income and deduction during the current tax year: revenues, $300,000; cost of goods sold, $160,000; tax-exempt interest income, $2,000; salaries to employees, $80,000; and long- term capital gain, $10,000.It paid business interest expense of $18,000 and investment interest expense of $2,000.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 primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding items such as depreciation methods, treatment of research and experimental costs, and the § 754 election.

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?