Exam 20: Forming and Operating Partnerships

XYZ, LLC, has several individual and corporate members. Abe and Joe, individuals with 4/30 year-ends, each have a 23percent profits and capital interest. RST, Incorporated, a corporation with a 6/30 year-end, owns a 4percent profits and capital interest, while DEF, Incorporated, a corporation with an 8/30 year-end, owns a 4.9percent profits and capital interest. Finally, 30 other calendar year-end individual partners (each with less than a 2percent profits and capital interest)own the remaining 45percent of the profits and capital interests in XYZ. What tax year-end should XYZ use, and which test or rule requires this year-end?

J&J, LLC, was in its third year of operations when J&J decided to expand the number of members from two, A and B, with equal profits and capital interests, to three members, A, B, and C. The third member, C, will contribute her financial expertise to the LLC in exchange for a one-third capital interest in J&J. Given the balance sheet below reflecting the financial position of J&J on the date member C is admitted, what are the tax consequences to members A, B, and C, and to J&J, when C receives her capital interest? If, instead, member C receives a one-third profits interest, what would be the tax consequences to members A, B, and C, and to J&J?

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

Zinc, LP was formed on August 1, 20X9. When the partnership was formed, Al contributed $10,000 in cash and inventory with an FMV and tax basis of $40,000. In addition, Bill contributed equipment with an FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with an FMV and tax basis of $20,000. Also, Chad contributed land with an FMV of $50,000 and tax basis of $35,000. Finally, Dave contributed a machine, secured by $35,000 of debt, with an FMV of $15,000 and a tax basis of $10,000. What is the total inside basis of all the assets contributed to Zinc, LP?

This year, HPLC, LLC, was formed by H Incorporated, P Incorporated, L Incorporated, and C Incorporated. Each member had an equal share in the LLC's capital. H Incorporated, P Incorporated, and L Incorporated each had a 30percent profits interest in the LLC, with C Incorporated having a 10percent profits interest. The members had the following tax year-ends: H Incorporated [1/31], P Incorporated [5/31], L Incorporated [7/31], and C Incorporated [10/31]. What tax year-end must the LLC use?

Tim, a real estate investor, Ken, a dealer in securities, and Hardware, Incorporated, a retail lumber store, form a partnership called HKT, LP. HKT is in the home-building business. Tim recently purchased his interest in HKT, while the other partners purchased their interests several years ago. During X3, HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes. Which of the following statements best represents how their portion of the gain should be reported to the partner?

A partner can generally apply passive activity losses against passive activity income for the year.

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

Which of the following statements is true when property is contributed in exchange for a partnership interest?

Which of the following would not be classified as a separately stated item?

What is the rationale for the specific rules partnerships must follow in determining a partnership's taxable year-end?

Which of the following rationales for adjusting a partner's basis is false?

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

On 12/31/X4, Zoom,LLC, reported a $54,000 loss on its books. The items included in the loss computation were $26,000 in sales revenue, $11,000 in qualified dividends, $18,000 in cost of goods sold, $46,000 in charitable contributions, $16,000 in employee wages, and $11,000 of rent expense. How much ordinary business income (loss)will Zoom report on its X4 return?

Gerald received a one-third capital and profit (loss)interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $27,000. His adjusted basis in the building was $13,500. In addition, the building was encumbered with a $8,100 nonrecourse mortgage that XYZ LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

On April 18, 20X8, Robert sold his 35 percent partnership interest in Fruit Wonder, LLC, to Richard for $110,000. Prior to selling his interest, Robert had a basis in Fruit Wonder of $70,000. Robert's basis included $25,000 of recourse debt and $5,000 of nonrecourse debt that had been allocated to him. Immediately after the purchase, what is Richard's tax basis in Fruit Wonder?

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

Lloyd and Harry, equal partners, form the Ant World Partnership. During the year, Ant World had the following revenue, expenses, gains, losses, and distributions: Given these items, what amount of ordinary business income (loss)and what separately stated items should be allocated to each partner for the year?

Ruby's tax basis in her partnership interest at the beginning of the partnership's tax year was $13,000. The following items were included in her Schedule K-1 from the partnership for the year: Determine what amounts related to these items Ruby will report on her tax return assuming her tax basis and at-risk amount are equal and that she is a material participant in the partnership's activities. Further, assume that Ruby and her husband, Gerald, are not involved in any other trade or business and that they file a joint return every year.