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Exam 21: Partnerships

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Question 21

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Morgan and Kristen formed an equal partnership on August 1 of the current year. Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000. Kristen contributed equipment with a basis of $42,000 and a value of $100,000. Kristen and Morgan each have a basis of $100,000 in their partnership interests.

A) True
B) False

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Question 22

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Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate nonliquidating distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000) , and land (basis to the partnership of $40,000 and fair market value of $42,000) . In addition, Mack's share of partnership debt decreased by $12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest (including debt share) following the distribution?

A) $30,000 basis in inventory; $40,000 basis in land, $98,000 basis in partnership.
B) $30,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.
C) $40,000 basis in inventory; $40,000 basis in land, $86,000 basis in partnership.
D) $40,000 basis in inventory; $42,000 basis in land, $98,000 basis in partnership.
E) $40,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.

F) A) and D)
G) B) and D)

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Question 23

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Allison and Taylor form a partnership by each making contributions of $90,000 cash to partnership capital. The partnership purchases an asset for $600,000, using the cash and financing the rest with a $420,000 recourse note. The partners expect the partnership to have losses for the first three years of operations and profits thereafter. Allison is allocated 75% of partnership losses until the date when the total partnership profits exceed total partnership losses. After that date, the profits and losses are shared equally between the two partners. How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

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

Tom and William are equal partners in the TW Partnership. Just before TW liquidated, Tom's capital account balance was $50,000 and William's capital account balance was $30,000. To meet the substantial economic effect requirements, any liquidating cash distribution must be allocated in proportion to those ending capital account balances.

In a proportionate nonliquidating distribution, cash is deemed to be distributed first, followed by capital and § 1231 assets, and last, unrealized receivables and inventory.

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

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

Syndication costs arise when partnership interests are being marketed to investors. These costs cannot be amortized or deducted.

At the beginning of the year, Heather's "tax basis" capital account balance in the HEP Partnership was $85,000. During the tax year, Heather contributed property with a basis of $6,000 and a fair market value of $10,000. Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000. At the end of the year, the partnership distributed $15,000 of cash to Heather. Also, the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather. What is Heather's ending capital account balance determined using the "tax basis" method?

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Ryan is a 25% partner in the ROCC Partnership. At the beginning of the tax year, Ryan's basis in the partnership interest was $90,000, including his share of partnership liabilities. During the current year, ROCC reported net ordinary income of $100,000. In addition, ROCC distributed $10,000 to each of the partners ($40,000 total) . At the end of the year, Ryan's share of partnership liabilities increased by $10,000. Ryan's basis in the partnership interest at the end of the year is:

In a proportionate liquidating distribution of his 40% interest in the RST LLC, Stuart received cash ($100,000), land (basis of $60,000 and value of $90,000), and unrealized receivables (basis of $0 and value of $40,000). In addition, Stuart is relieved of his $80,000 share of the LLC's liabilities. Stuart's basis in RST (including his share of LLC liabilities) was $200,000 immediately prior to this distribution. a. How much gain or loss does Stuart recognize on this distribution? b. What is Stuart's basis in the receivables and land he receives in the distribution?

Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership. The partnership reported $200,000 of net income from operations, a $2,000 short-term capital loss, and a $10,000 charitable contribution. In addition, the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy. Assuming the partnership has no beginning or ending liabilities, what is Katherine's basis in her partnership interest at the end of the year?

Match each of the following statements with the terms below that provide the best definition. -Limited liability partnership

Generally, no gain is recognized on a proportionate liquidating or nonliquidating distribution of non-cash property even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.

Which of the following statements, if any, about a multi-member LLC is false?

In a proportionate liquidating distribution in which the partnership is liquidated, Marcus received cash of $60,000, inventory (basis of $10,000, fair market value of $12,000), and a capital asset (basis and fair market value of $22,000). Immediately before the distribution, Marcus's basis in the partnership interest was $100,000. a. How much gain or loss will Marcus recognize on the distribution? b. What is Marcus's basis in the inventory and the capital asset?

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