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Exam 21: Partnerships

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Question 1

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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 RSTU,in which her basis is $30,000.Cassandra is allocated an $80,000 loss from C&C,and $20,000 of income from RSTU.How much of the loss from C&C may Cassandra deduct? Under what Code provisions are the remaining losses suspended?

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Cassandra's $80,000 loss from C&C is fir...

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Question 2

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Sharon and Sara are equal partners in the S&S Partnership.On January 1 of the current year,each partner's adjusted basis in S&S was $50,000 (including each partner's $15,000 share of the partnership's $30,000 of liabilities).During the current year,S&S repaid the $30,000 of liabilities and borrowed $20,000 for which Sharon and Sara are equally liable.In the current year ended December 31,S&S also sustained a net operating loss of $25,000 and earned $5,000 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?

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$35,000.Each partner's initial basis in ...

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Question 3

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Eric receives a proportionate nonliquidating distribution when the basis of his partnership interest is $80,000.The distribution consists of $20,000 in cash and property with an adjusted basis to the partnership of $45,000 and a fair market value of $40,000.Eric's basis in the noncash property and his remaining basis in the partnership interest are:

Stephanie receives a proportionate nonliquidating distribution from the QRS Partnership.The distribution consists of $60,000 cash and property with an adjusted basis to the partnership of $30,000 and a fair market value of $25,000.Immediately before the distribution,Stephanie's adjusted basis for her partnership interest is $80,000.Stephanie's basis in the noncash property received is:

In a proportionate liquidating distribution in which the partnership is also liquidated,Macy received cash of $10,000 and inventory (basis of $18,000 and fair market value of $32,000).Immediately before the distribution,Macy's basis in the partnership interest was $40,000.Macy recognizes no gain or loss,and her basis in the inventory is $30,000.

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 and profits 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?

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

Match each of the following statements with the terms below that provide the best definition.

Match each of the following statements with the terms below that provide the best definition.

Brooke and John formed a partnership.Brooke received a 40% interest in partnership capital and profits in exchange for contributing land (basis of $30,000 and fair market value of $120,000) .John received a 60% interest in partnership capital and profits in exchange for contributing $180,000 of cash.Three years after the contribution date,the land contributed by Brooke is sold by the partnership to a third party for $150,000.How much taxable gain will Brooke recognize from the sale?

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000.His basis in his partnership interest was $15,000 immediately before the distribution.Carlos assigns a basis of $5,000 to the inventory,and recognizes a $2,000 capital loss.

Beth has an outside basis of $60,000 in the BBDE Partnership as of December 31 of the current year.On that date the partnership liquidates and distributes to Beth a proportionate distribution of $20,000 cash and inventory with an inside basis to the partnership of $18,000 and a fair market value of $22,000.In addition,Beth receives a desk (not inventory) which has an inside basis and fair market value of $200 and $350,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?

In which of the following independent situations would the transaction most likely be characterized as a disguised sale?

The "outside basis" is defined as a partner's basis in the partnership interest.

At the beginning of the year,Heather's "tax basis" capital account balance in the HEP Partnership was $60,000.During the tax year,Heather contributed property with a basis of $10,000 and a fair market value of $30,000.Her share of the partnership's ordinary income and separately stated income and deduction items was $26,000.At the end of the year,the partnership distributed $10,000 of cash to Heather.Also,the partnership allocated $15,000 of recourse debt and $25,000 of nonrecourse debt to Heather.What is Heather's ending capital account balance determined using the "tax basis" method?

The partnership reports each partner's share of income to the partner in a single amount on Form 1099.

The MOG Partnership reports ordinary income of $60,000,long-term capital gain of $12,000,and tax-exempt income of $12,000.The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income.Their allocation of ordinary income will be reduced accordingly,and Olivia will be allocated a proportionately greater share of ordinary income.(In other words,each partner will receive allocations totaling 1/3 of the total $84,000 of partnership income.)This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.

Crystal contributes land to the newly formed CD Partnership in exchange for a 40% interest.The land has an adjusted basis and fair market value of $200,000 and is subject to a liability of $50,000,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 $60,000.Assume all liabilities are allocated proportionately to the partners.Total partnership income for the year is $300,000.What is Crystal's basis in her partnership interest at the end of the year?

A limited liability limited partnership (LLLP)is a limited partnership (LP)in which all partners,including the general partners,are protected from debts of the partnership.

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?