Exam 9: Forming and Operating Partnerships

A partner's self-employment earnings (loss) may be affected by her share of ordinary business income (loss) and any guaranteed payments she receives. The impact of these amounts typically depends on the status of the partner. Which of the following statements correctly describes the effect these items have on the partner's self-employment earnings (loss)?

Which of the following does not represent a tax election available to either partners or partnerships?

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

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately-stated item for the partners that receive the payment?

Alfred, a one-third profits and capital partner in Pizzeria Partnership needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership. Unfortunately, the Schedule K-1 he recently received was for year 3 of the partnership, but Alfred only knows that his tax basis at the beginning of year 2 of the partnership was $23,000. Thankfully, Alfred still has his Schedule K-1 from the partnership for years 1 and 2. Using the following information from Alfred's year 1, year 2, and year 3 Schedule K-1, calculate his tax basis the end of year 2 and year 3.

On 12/31/X4, Zoom, LLC reported a $60,000 loss on its books. The items included in the loss computation were $30,000 in sales revenue, $15,000 in qualified dividends, $22,000 in cost of goods sold, $50,000 charitable contribution, $20,000 in employee wages, and $13,000 of rent expense. How much ordinary business income (loss) will Zoom report on its X4 return?

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

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?

What is the difference between a partner's tax basis and at-risk amount?

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is True?

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

Jay has a tax basis of $14,000 in his partnership interest at the beginning of the partnership tax year. The following amounts of partnership debt were allocated to Jay and are included in his beginning of the year tax basis: (1) recourse debt - $3,000, (2) qualified nonrecourse debt - $1,000, and (3) nonrecourse debt - $500. There were no changes to the debt allocated to Jay during the tax year.  If Jay is allocated a $15,000 loss for the current year, how much of the loss will be suspended under the tax basis and at-risk limitations?

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.

Peter, Matt, Priscilla, and Mary began the year in the PMPM General Partnership sharing profits, losses, and capital equally. They each had a tax basis at the beginning of the year of $3,000, $10,000, $8,000, and $11,000 respectively. Early in the year, Mary provided general consulting services to the partnership and received an additional 15 percent profits, losses, and capital interest in the partnership. The liquidation value of her additional interest was $45,000. Later the same year, the partnership received cash contributions of $25,000 from Peter and Matt that it used to repay the partnership's $35,000 recourse debt. According to state law, the partners shared responsibility for this debt in accordance with their loss sharing ratios. What is each partner's tax basis after adjustment for these transactions?

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

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

Tax elections are rarely made at the partnership level.

Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob's outside basis in Freedom, LLC is $10,000. This includes his $2,500 one-fourth share of the LLC's debt. Bob's 704(b) capital account is $17,000. If Tom bought Bob's LLC interest for $17,000, what would Tom's outside basis be in Freedom, LLC?

At the end of year 1, Tony had a tax basis of $40,000 in Tall Ladders, Limited Partnership. Tony has a 20 percent profits interest in Tall Ladders. For year 2, Tall Ladders will pay Tony a $10,000 guaranteed payment for extra services he provides to the partnership. Given the following Income Statement and Balance Sheet from Tall Ladders, what is Tony's adjusted tax basis at the end of year 2?

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.