Exam 10: Partnerships: Formation, Operations, and Basis

When Kevin and Marshall formed the equal KM LLC, the fair market values of their interests were each $100,000. Kevin contributed $60,000 cash, equipment with a basis of $0 and a fair market value of $10,000, and a small parcel of land in which he had a basis of $50,000 and that was valued at $30,000. Marshall contributed receivable that was valued at $100,000 and in which his basis was $0. Kevin has a basis in his partnership interest of $110,000 and Marshall's basis is $0.

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

PaulCo, DavidCo, and Sean form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, whereas DavidCo and Sean use a November 30 and December 31 year-end, respectively. The partnership must use the least aggregate deferral method to determine its year-end.

Match each of the following statements with the terms below that provide the best definition. -§ 179 deduction

At the beginning of the year, Ryan's capital account balance in the RUS Partnership in which he owned a 40% interest) was $200,000. During the year, Ryan contributed cash $40,000) and property basis = $20,000, fair market value = $30,000). RUS reported ordinary income of $100,000 and tax-exempt income of $6,000. At the end of the year, the partnership distributed $6,000 of cash to Ryan. On the Schedule K-1, the partnership shows that Ryan had a $50,000 share of nonrecourse LLC debt at the end of the year. Using the tax basis method, how much is Ryan's ending capital account balance?

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

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 even if it is not distributed.

Ken and Lars formed the equal KL Partnership during the current year; Ken contributes $100,000 in cash and Lars contributes land basis of $60,000, fair market value of $40,000) and equipment basis of $0, fair market value of $60,000). Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.

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

Matching Match each of the following statements with the numbered terms below that provide the best definition. -§704b) book

Steve's basis in his SAW Partnership interest is $200,000 including all adjustments at the beginning of the tax year, . His allocable share of partnership items is: $120,000) of ordinary loss, $6,000 tax-exempt interest income, and a $14,000 long-term capital gain. In addition, during the year, the LLC distributed $20,000 of cash to Steve. Also during the year, Steve's share of partnership debt increased by $10,000. Steve's ending basis in his LLC interest is $80,000.

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?

A partnership cannot use the cash method of accounting if one of the partners is a C corporation.

ABC LLC reported the following items on the LLC's Schedule K: ordinary income, $100,000; interest income, $3,000; long-term capital loss, $4,000); charitable contributions, $1,000; AMT depreciation adjustment, $10,000; and cash distributions to partners, $50,000. How much will ABC show as net income loss) on its Analysis of Income Loss)?

Seven years ago, Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years. This year, when his adjusted basis in the property was $250,000, he transferred the property to the newly formed PLA LLC in exchange for a one-third interest in it. PLA incurred $10,000 of transfer taxes and fees related to the property. It must treat the $260,000 basis in the property, fees, and expenses, as new MACRS property depreciable over 27.5 years.

What is the difference between a partner's basis in the partnership interest and a partner's § 704b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

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 one-third interest in partnership capital 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?

Blaine contributes property valued at $50,000 basis of $40,000) in exchange for a 25% interest in the BIKE Partnership. If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

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

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.