Exam 9: Forming and Operating Partnerships

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?

John, a limited partner of Candy Apple, LP, is allocated $30,000 of ordinary business loss from the partnership. Before the loss allocation, his tax basis is $20,000 and his at-risk amount is $10,000. John also has ordinary business income of $20,000 from Sweet Pea, LP, as a general partner and ordinary business income of $5,000 from Red Tomato as a limited partner. How much of the $30,000 loss from Candy Apple can John deduct currently?

In what order are the loss limitations for partnerships applied?

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

Which requirement must be satisfied in order to specially allocate partnership income or losses to partners?

Actual or deemed cash distributions in excess of a partner's outside basis are generally taxable as capital gains.

Hilary had an outside basis in LTL General Partnership of $10,000 at the beginning of the year. LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000, a $10,000 reduction in Hilary's share of partnership debt, a cash distribution of $20,000, and tax-exempt income of $3,000. What is Hilary's adjusted basis at the end of the year?

Which of the following would not be classified as a material participant in an activity?

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 items will affect a partner's tax basis?

A partnership can elect to amortize organization and start-up costs; however, syndication costs are not deductible.

On January 1, X9, Gerald received his 50percent profits and capital interest in High Air, LLC, in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage. High Air reported a $15,000 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation?

Kim received a one-third profits and capital interest in Bright Line, LLC, in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $23,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: sales-$143,000, cost of goods sold-$83,000, depreciation expense-$40,000, long-term capital gains-$8,000, qualified dividends-$5,300, and municipal Bond interest-$3,300. How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income, (2) Decrease for share of separately stated loss items, and (3) Decrease for distributions?

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

Bob is a general partner in Fresh Foods Partnership and is trying to determine if the income reported on his K-1 should be classified as passive or active trade or business income. List three different criteria that, if met, would allow Bob to treat the income from Fresh Foods as active trade or business income.

A partnership with a C corporation partner must always use the accrual method as its accounting method.

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.

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