Exam 10: Partnerships: Formation, Operation, and Basis

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Rick is a 30% partner in the ROC Partnership. At the beginning of the tax year, Rick's basis in the partnership interest was $60,000, including his share of partnership liabilities. During the current year, ROC reported net ordinary income of $40,000. In addition, ROC distributed $5,000 to each of the partners ($15,000 total). At the end of the year, Rick's share of partnership liabilities increased by $20,000. Rick's basis in the partnership interest at the end of the year is:

At the beginning of the tax year, Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000. His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000. He also received a distribution from the partnership of $20,000 cash during the year. For the tax year, Zach will report:

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

Julie and Kate form an equal partnership during the current year. Julie contributes cash of $160,000, and Kate contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $100,000. As a result of these transactions, Kate has a basis in her partnership interest of $40,000.

In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities, and $20,000 as a distribution to partner Olivia. In addition, the partnership earned $6,000 of long-term capital gains during the year. Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year?

JLK Partnership incurred $15,000 of organizational costs and $75,000 of startup costs in 2011. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($10,000 of organizational costs and $70,000 of startup costs) may be amortized over 180 months.

Allison and Taylor form a partnership by each making contributions of $90,000 cash to partnership capital. The partnership purchases an asset for $600,000, using the cash and financing the rest with a $420,000 recourse note. Allison is allocated 75% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses. After that date, the profits and losses are shared equally between the two partners. The partners expect the partnership to have losses for the first three years of operations and profits thereafter. How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

Molly is a 40% partner in the MAP Partnership. During the current tax year, the partnership reported ordinary income of $210,000 before payment of guaranteed payments and distributions to partners. The partnership made an ordinary cash distribution of $30,000 to Molly, and paid guaranteed payments to partners Molly, Amber, and Pat of $30,000 each ($90,000 total). How much will Molly's adjusted gross income increase as a result of the above items?

The "outside basis" is defined as a partner's basis in the partnership interest.

In which of the following independent situations would the transaction most likely be characterized as a disguised sale?

A partner has a profit-sharing percent, a loss-sharing percent, and a capital-sharing ownership percent. Depending on the provisions in the partnership agreement, these amounts may or may not be the same for a given partner.

William is a general partner in the WST partnership. During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000. William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.

Sharon and Sara are equal partners in the S&S Partnership. On January 1 of the current year, each partner's adjusted basis in S&S was $50,000 (including each partner's $15,000 share of the partnership's $30,000 of liabilities). During the current year, S&S repaid the $30,000 of liabilities and borrowed $20,000 for which Sharon and Sara are equally liable. In the current year ended December 31, S&S also sustained a net operating loss of $25,000 and earned $5,000 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?

ABC, LLC is equally-owned by three corporations. Two corporations have June 30 fiscal year ends, the third is a calendar-year taxpayer. ABC will use a June 30 year end under the majority partners' tax year rule because more than 50% of the partnership's capital and profits is owned by partners with the same taxable year.

During the current year, MAC Partnership reported the following items of receipts and expenditures: $300,000 sales, $20,000 utilities, $30,000 rent, $100,000 salaries to employees, $40,000 guaranteed payment to partner Mitchell, investment interest income of $4,000, a charitable contribution of $6,000, and a distribution of $20,000 to partner Chad. Austin is a 40% partner. What items will be reflected on Austin's Schedule K-1?

Which of the following is not an adjustment to the partners' basis in the partnership interest?

On January 1 of the current year, Jenna and Rob form an equal partnership. Jenna makes a cash contribution of $80,000 and a property contribution (adjusted basis of $120,000; fair market value of $160,000) in exchange for her interest in the partnership. Rob contributes property (adjusted basis of $190,000; fair market value of $240,000) in exchange for his partnership interest. Which of the following statements is true concerning the income tax results of this partnership formation?

Which of the following statements is true regarding accounting methods available to a partnership?

In the current year, the CAR Partnership received revenues of $400,000 and paid the following amounts: $160,000 in rent, utilities, and salaries; a $40,000 guaranteed payment to partner Ryan; $20,000 to partner Amy for consulting services; and a $40,000 distribution to 25% partner Cameron. In addition, the partnership realized a $12,000 net long-term capital gain. Cameron's basis in his partnership interest was $60,000 at the beginning of the year, and included his $25,000 share of partnership liabilities. At the end of the year, his share of partnership liabilities was $15,000.