Exam 10: Partnerships: Formation, Operations, and Basis

In the current year, the DOE LLC received revenues of $200,000 and paid the following amounts: $50,000 of business expenses rent, utilities, wages, depreciation, etc.), a $40,000 guaranteed payment for services) to 50% member Dave, $10,000 to member Ethan for consulting services, and $10,000 as a distribution to member Olivia. In addition, the LLC earned $2,000 of tax-exempt interest income during the year. Dave is the managing member of the LLC. His basis in his LLC interest was $50,000 at the beginning of the year, which includes a $12,000 share of LLC liabilities. At the end of the year, his share of the LLC's liabilities was $20,000. a. How much income must Dave report for the tax year and what is the character of the income? b. What is Dave's basis in his LLC interest at the end of the tax year? c. On what income will Dave's self-employment tax be calculated? d. What is the maximum amount Dave might be able to deduct for this business under § 199A? What additional information would Dave need to make this calculation?

George is a limited partner in the GLH Partnership. His basis is $40,000 before considering the current year operations and includes a $20,000 recourse debt share and a $10,000 nonrecourse debt share. The nonrecourse debt is not treated as qualified nonrecourse financing. GLH reported a $200,000 loss for the year of which George's 40% share is $80,000. George has passive income of $50,000 from another activity not eligible for the special real estate deduction). He has no business losses for the year from other sources. How much of the $80,000 GLH loss can George deduct this year?

A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.

DIP LLC reports ordinary income before guaranteed payments) of $120,000, rent expense of $40,000, and interest income of $4,000 for the year. In addition, DIP paid guaranteed payments of $20,000 to partner Percy. If Percy owns a 40% capital and profits interest, how much income will he report for the year and what is its character?

Julie and Kate form an equal partnership during the current year. Julie contributes cash of $200,000, and Kate contributes property adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $60,000. As a result of these transactions, Kate has a basis in her partnership interest of $120,000.

Stephanie is a calendar year cash basis taxpayer. She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end. The partnership's operating income after deducting guaranteed payments) was $120,000 $10,000 per month) and $144,000 $12,000 per month), respectively, for the partnership tax years ended September 30, 2019 and 2020. The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30, 2019 and 2020. How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31, 2019?

What are syndication costs, and how are they treated for tax purposes?

In a limited liability company, all members may participate in management the operating agreement cannot limit participation), and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

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

Which one of the following is an example of a special allocation of partnership income?

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

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

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

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

Samuel is the managing general partner of STU in which he owns a 25% interest. For the year, STU reported ordinary income of $400,000 after deducting all guaranteed payments). In addition, the LLC reported interest income of $12,000. Samuel received a guaranteed payment of $120,000 for services he performed for STU. How much income from self-employment did Samuel earn from STU?

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

Sharon and Sue are equal partners in the S&S Partnership. On January 1 of the current year, each partner's adjusted basis in S&S was $80,000 including each partner's $20,000 share of the partnership's $40,000 of liabilities). During the current year, S&S repaid $30,000 of the debt and borrowed $20,000 for which Sharon and Sue are equally liable. In the current year ended December 31, S&S also sustained a net operating loss of $40,000 and earned $10,000 of interest income from investments. If liabilities are shared equally by the partners, on January 1 of the next year, how much is each partner's basis in her interest in S&S?

Sharon contributed property to the newly formed QRST Partnership. The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date. The property was also encumbered by a $90,000 nonrecourse debt, which was transferred to the partnership on that date. Sharon is treated as a general partner. She is allocated 30% of QRST's profits and 20% of QRST's losses. Sharon's basis in the partnership interest after the formation transaction is:

On the formation of a partnership, when might a disguised sale occur? How can this treatment be avoided?

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.