Exam 15: Forming and Operating Partnerships

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

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: TALL LADDERS, LP Income Statement Year 2 Sales 65,000 CoGs (47,000) Gross Profit 18,000 Interest Inc ome 3,000 Dividends 5,000 Long Term Capital Gain 10,000 Other Income 15,000 Total Other Inc ome 33,000 MACRS Depreciation (20,000) Guaranteed Payments (10,000) Charitable Contribution (10,000) Fines and Penalties (4,500) Other Expenses (8,500) Total other Expenses (53,000) Net Income (Loss) (2,000) Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

Partnerships may maintain their capital accounts according to which of the following rules?

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.

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

The character of each separately-stated item is determined at the partner level.

Lincoln, Inc., Washington, Inc., and Adams, Inc. 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? Cost of Goods Sold \ 85,000 Cash Distribution to Harry \ 15,000 Municipal Bond Interest \ 1,500 Short-Term Capital Gains \ 4,500 Employee Wages \ 40,000 Rent \ 10,000 Charitable Contributions \ 25,000 Sales \ 175,000 Repairs and Maintenance \ 5,000 Long-Term Capital Gains \ 12,000 Fines and Penalties \ 5,000 Guaranteed Pay ment to Lloyd \ 25,000

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

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.

Under proposed regulations issued by the Treasury Department, in which of the following situations should an LLC member be treated as a general partner for self-employment tax purposes?

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?

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

Partnerships tax rules incorporate both the entity and aggregate approaches.

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.

Which of the following statements regarding capital and profit interests received for services contributed to a partnership is false?

Which person would generally be treated as a material participant in an activity?

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

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.

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

What form does a partnership use when filing an annual informational return?