Exam 10: Partnerships Formation Operation and Basis

During the current year, MAC Partnership reported the following items of receipts and expenditures: $600,000 sales, $80,000 utilities and rent, $200,000 salaries to employees, $20,000 guaranteed payment to partner Antonio, investment interest income of $4,000, a charitable contribution of $8,000, and a distribution of $30,000 to partner Carl. Antonio is a 25% general partner. Based on this information, what items will be reflected on Antonio's Schedule K-1?

Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

Match each of the following statements with the terms below that provide the best definition. -Schedule K-1

A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

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.

Allison is a 40% partner in the BAM Partnership. At the beginning of the tax year, Allison's 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:

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

Tim, Al, and Pat contributed assets to form the equal TAP Partnership. Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000). Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000). Pat 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?

Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

TEC Partners was formed during the current tax year. It incurred $10,000 of organizational expenses, $80,000 of startup expenses, and $5,000 of transfer taxes to retitle property contributed by a partner. The property had been held as MACRS property for ten years by the contributing partner, and had an adjusted basis to the partner of $300,000 and fair market value of $400,000. Which of the following statements is correct regarding these items?

Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Also, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. ​ As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.

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

Match each of the following statements with the terms below that provide the best definition. -Economic effect test

Which one of the following statements regarding partnership taxation is incorrect?

Match each of the following statements with the terms below that provide the best definition. -Schedules M-1 or M-3

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

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