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Exam 10: Partnerships: Formation, operation, and Basis

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Question 51

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Marcie is a 40% partner in the MAP Partnership.During the current tax year,the partnership reported ordinary income of $140,000 before payment of guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $10,000 to Marcie,and paid guaranteed payments to partners Marcie,Alice,and Pat of $20,000 each ($60,000 total) .How much will Marcie's adjusted gross income increase as a result of the above items?

A) $32,000
B) $52,000
C) $56,000
D) $76,000
E) None of the above.

F) A) and C)
G) B) and C)

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Question 52

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In computing the ordinary income of a partnership,a deduction is generally allowed for:

A) Guaranteed payments to partners.
B) A standard deduction.
C) Partners' personal exemptions.
D) The net operating loss deduction.
E) All of the above can be deducted.

F) A) and E)
G) A) and B)

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Question 53

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During the current year,John and Ashley form the JA Partnership and agree to share profits and losses equally.Ashley contributes land with a fair market value of $80,000 (subject to a $30,000 nonrecourse mortgage).On the contribution date,Ashley's adjusted basis in the land is $40,000.Immediately after formation,Ashley's partnership outside basis is $25,000.

Beth's basis in her BBDE LLC interest is $40,000 at the beginning of the tax year.Her allocable share of LLC items are as follows: $30,000 of ordinary income,$5,000 tax-exempt interest income,and a $12,000 long-term capital gain.In addition,the LLC distributed $20,000 of cash to Beth during the year.Assuming the LLC had no liabilities at the beginning or the end of the year,Beth's ending basis in her LLC interest is $67,000.

Susan and Sarah form a partnership by each making contributions of $30,000 cash to partnership capital.The partnership purchases an asset for $200,000,using the cash and financing the rest with a $140,000 recourse note.Susan is allocated 75% of partnership profits and 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.The partners expect the partnership to have losses for the first three years of operations and profits thereafter.How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner,regardless of whether or not distributed.

On a partnership's Form 1065,which of the following statements is always true?

Hardy's basis in his partnership interest was $5,000 at the beginning of the tax year.For the year,his share of the partnership's loss was $6,000,and he also received a distribution of $3,000.Hardy can deduct a $2,000 loss,and the remaining $4,000 loss is suspended until a year in which he has adequate basis.

Section 721 provides that no gain or loss is recognized on contribution of property to a partnership in exchange for an interest in the partnership.A disguised sale is an exception to nonrecognition of gain or loss under § 721.

Meagan purchased her partnership interest from Lisa on the first day of the current year for $30,000 cash.She received a $15,000 cash distribution from the partnership during the year,and her share of partnership income is $12,000.If her share of partnership liabilities on the last day of the partnership year is $10,000,her outside basis for her partnership interest at the end of the year is $27,000.

A partnership will take a carryover basis in an asset it acquires when:

Michelle and Jacob formed the MJ Partnership.Michelle contributed $20,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations,the following events occurred: the partnership had a net taxable income of $10,000;Michelle received a distribution of $8,000 cash from the partnership;and Michelle had a 50% share in the partnership's $16,000 of recourse liabilities on the last day of the partnership year.Michelle's adjusted basis for her partnership interest at year end is:

Tina and Randy formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations,they offered Susan 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 Susan.How should Susan treat the receipt of the partnership interest in the current year?

Kevin,Chuck,and Greg contributed assets to form the equal KCG Partnership.Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000) .Chuck contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000) .Greg 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?

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.

The MNO Partnership,a calendar year taxpayer,was formed on July 1 of the current year and started business on October 1.MNO incurred $30,000 in startup costs.MNO may deduct $5,000 and amortize the remaining $25,000 over 120 months starting in July.

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

Tim and Tom formed the equal T&T Partnership during the current year,with Tim contributing $200,000 in cash and Tom contributing land (basis of $100,000,fair market value of $140,000)and inventory (basis of $40,000,fair market value of $60,000).Tom recognizes a $60,000 gain on the contribution and his basis in his partnership interest is $200,000.