Exam 9: Forming and Operating Partnerships

John, a limited partner of Candy Apple, LP, is allocated $29,500 of ordinary business loss from the partnership. Before the loss allocation, his tax basis is $19,500 and his at-risk amount is $9,500. John also has ordinary business income of $19,500 from Sweet Pea, LP, as a general partner and ordinary business income of $5,500 from Red Tomato as a limited partner. How much of the $29,500 loss from Candy Apple can John deduct currently?

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?

Lincoln, Incorporated, Washington, Incorporated, and Adams, Incorporated, form Presidential Suites Partnership on February 15, 20X9. Now, Presidential Suites must adopt its required tax year-end. The partners' year-ends, profits interests, and capital interests are reflected in the table below. Given this information, what tax year-end must Presidential Suites use, and what rule requires this year-end?

Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank contributed $50,000 in cash and $50,000 worth of equipment. Frank's adjusted basis in the equipment was $35,000. Bob contributed $50,000 in cash and $50,000 worth of land. Bob's adjusted basis in the land was $30,000. On 3/15/X4, Soxy Socks sells the land Bob contributed for $60,000. How much gain (loss) related to this transaction will Bob report on his X4 return?

Ruby's tax basis in her partnership interest at the beginning of the partnership's tax year was $13,800. 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.

How does additional debt or relief of debt affect a partner's basis?

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

Tax elections are rarely made at the partnership level.

A general partner's share of ordinary business income is similar to investment income; thus, a general partner only includes their guaranteed payments as self-employment income.

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) and are also treated as separately stated items.

How does a partnership make a tax election for the current year?

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?

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

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?

Fred has a 45percent profits interest and 30percent capital interest in the SAP Partnership, and his tax basis before considering his share of SAP's current-year loss is $11,000. Included in his tax basis is a $2,600 share of recourse debt and a $5,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $15,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

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?

Partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

If a partner participates in partnership activities on a regular, continuous, and substantial basis, then the partnership's activities with respect to this individual partner are not considered passive.

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