Exam 20: Forming and Operating Partnerships

Alfred,a one-third profits and capital partner in Pizzeria Partnership,needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership.Unfortunately,the Schedule K-1 he recently received was for Year 3 of the partnership,but Alfred only knows that his tax basis at the beginning of Year 2 of the partnership was $23,000.Thankfully,Alfred still has his Schedule K-1 from the partnership for Years 1 and 2. Using the following information from Alfred's Year 1,Year 2,and Year 3 Schedule K-1,calculate his tax basis the end of Year 2 and Year 3.

A partnership can elect to amortize organization and start-up costs; however,syndication costs are not deductible.

Why are guaranteed payments deducted in calculating the ordinary business income (loss)of partnerships and treated as a separately stated item for the partners that receive the payment?

Frank and Bob are equal members in Soxy Socks,LLC.When forming the LLC,Frank contributed $50,000 in cash and $50,000 worth of equipment.Frank's adjusted basis in the equipment was $35,000.Bob contributed $50,000 in cash and $50,000 worth of land.Bob's adjusted basis in the land was $30,000.On 3/15/X4,Soxy Socks sells the land Bob contributed for $60,000.How much gain (loss)related to this transaction will Bob report on his X4 return?

The main difference between a partner's tax basis and at-risk amount is that qualified nonrecourse financing is not included in the at-risk basis amount.

For partnership tax years ending after December 31,2015,partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Lincoln,Inc.,Washington,Inc.,and Adams,Inc.,form Presidential Suites Partnership on February 15,20X9.Now,Presidential Suites must adopt its required tax year-end.The partners' year-ends,profits interests,and capital interests are reflected in the table below.Given this information,what tax year-end must Presidential Suites use,and what rule requires this year-end?

The term "outside basis" refers to the partnership's basis in its assets,whereas the term "inside basis" refers to an individual partner's basis in her partnership interest.

Fred has a 45 percent profits interest and 30 percent capital interest in the SAP Partnership,and his tax basis before considering his share of SAP's current-year loss is $11,000.Included in his tax basis is a $2,600 share of recourse debt and a $5,300 share of nonrecourse debt.Fred is a limited partner in SAP.He is not involved in any other activities.If SAP has a $15,000 ordinary loss for the year,how much of the loss can be deducted currently,and how much of the loss is suspended because of the tax basis,at-risk,and passive activity loss limitations?

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss)and are also treated as separately stated items.

Tom is talking to his friend Bob,who has an interest in Freedom,LLC,about purchasing his LLC interest.Bob's outside basis in Freedom,LLC,is $10,000.This includes his $2,500 one-fourth share of the LLC's debt.Bob's 704(b)capital account is $17,000.If Tom bought Bob's LLC interest for $17,000,what would Tom's outside basis be in Freedom,LLC?

If partnership debt is reduced and a partner is deemed to receive a cash distribution,what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

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.When it was formed,the partners received equal profits and capital interests,and the following items were contributed by each partner: Troy-cash of $3,000,inventory with an FMV and tax basis of $5,000,and a building with an FMV of $22,000 and adjusted basis of $10,000.Additionally,the building was secured by a $10,000 nonrecourse mortgage. Peter-cash of $5,000,accounts payable of $12,000 (recourse debt for which each partner becomes equally responsible),and land with an FMV of $27,000 and tax basis of $20,000. Sarah-cash of $2,000,accounts receivable with an FMV and tax basis of $1,000,and equipment with an FMV of $40,000 and adjusted basis of $3,500.Sarah also contributed a $23,000 nonrecourse note payable secured by the equipment. What is each partner's outside basis,and how much gain (loss)must the partners recognize in 20X9,when Picture Perfect was formed?

Actual or deemed cash distributions in excess of a partner's outside basis are generally taxable as capital gains.

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

Which of the following statements regarding partnership losses suspended by the tax basis limitation is true?

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

Which of the following statements exemplifies the entity theory of partnership taxation?

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 percent profits and capital interest while Sue has a 35 percent 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?