Exam 10: Partnerships: Formation, Operations, and Basis

The BMR LLC conducted activities that were eligible for a $20,000 credit for increasing research activities. In addition, the LLC paid foreign taxes of $1,200. On the partners' Schedules K-1, BMR will allocate the $20,000 credit, and it will provide the necessary information so the partners can calculate the foreign tax credit if they so choose.

Which one of the following is not an item that should be documented in the partnership or LLC operating) agreement?

Match each of the following statements with the terms below that provide the best definition. -Partner's capital account

Mark and Addison formed a partnership. Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000. Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash. Three years after the contribution date, the land contributed by Mark is sold by the partnership to a third party for $76,000. How much taxable gain will Mark recognize from the sale?

Gina is a single taxpayer and an active partner in the GMA LLC. Gina's Schedule K-1 reflects a $20,000 ordinary income share, $2,000 of interest income, and a $10,000 guaranteed payment for services. Gina's self-employment income from other sources and modified adjusted gross income is about $300,000. With respect to the income from the LLC, Gina is subject to the 0.9% additional Medicare tax on $30,000 and the 3.8% net investment income tax of $2,000.

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits. During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000. The partnership distributed $10,000 cash to Binita. Her adjusted basis outside basis) for her partnership interest at year-end is:

Matching Match each of the following statements with the numbered terms below that provide the best definition. -Interest expense

Ryan is a 25% partner in the ROCC Partnership. At the beginning of the tax year, his 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. His basis in the partnership interest at the end of the year is:

Which of the following is a correct definition of a concept related to partnership taxation?

Nicholas, a one-third partner, received a guaranteed payment in the current year of $50,000. Partnership income before consideration of the guaranteed payment was $20,000. Assuming that no loss limitation rules apply, Nicholas reports a $10,000 ordinary loss from partnership operations and the $50,000 guaranteed payment as ordinary income.

An example of the aggregate concept of partnership taxation is that the partnership makes elections related to depreciation, tax credit calculations except the foreign tax credit), and whether to claim a § 179 deduction.

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.

Match each of the following statements with the terms below that provide the best definition. -Foreign tax credit vs. deduction

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

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. If the partnership has no beginning or ending liabilities, what is Katherine's basis in her partnership interest at the end of the year?

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs $1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Paul sells one parcel of land basis of $100,000) for its fair market value of $160,000 to a partnership in which he owns a 60% capital interest. Paul held the land for investment purposes. The partnership is in the real estate development business and will build residential housing for sale to customers) on the land the land is inventory to the partnership). Paul will recognize:

Matching Match each of the following statements with the numbered terms below that provide the best definition. -Carryover

Match each of the following statements with the terms below that provide the best definition. -Qualified business income deduction

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