Deck 14: Partnerships and Limited Liability Entities

Question 1

A limited partnership (LP) offers all partners protection from claims by the LP's creditors.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Answer 3

True

Question 4

In a limited liability partnership, all members may participate in management and have personal liability for entity debts except for malpractice committed by the other partners.

Question 5

Ken and Lars formed the equal KL Partnership during the current year; Ken contributes $100,000 in cash and Lars contributes land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000).Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.

Question 6

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Question 7

George received a fully vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP, LLC (not a publicly traded partnership interest).The future profits of the partnership are subject to normal operating risks.George will report ordinary income equal to the fair market value of the profits interest, but the capital interest will not be currently taxed to him.

Question 8

When Kevin and Marshall formed the equal KM LLC, the fair market values of their interests were each $100,000. Kevin contributed $60,000 cash, equipment with a basis of $0 and a fair market value of $10,000, and a small parcel of land in which he had a basis of $50,000 and that was valued at $30,000.Marshall contributed receivable that was valued at $100,000 and in which his basis was $0.Kevin has a basis in his partnership interest of $110,000 and Marshall's basis is $0.

Question 9

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership.An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.

Question 10

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributes a parcel of this land (basis of $15,000) to a partnership, also to be held as inventory.The fair market value of the property is $12,000 at the contribution date.After three years, the partnership sells the land for $10,000.The partnership will recognize a $5,000 ordinary loss on sale of the property.

Question 11

In a limited liability company, all members may participate in management (the operating agreement cannot limit participation), and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

Question 12

A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.

Question 13

The partnership agreement might provide, for example, that the first $40,000 of ordinary income is allocated to Partner A.Allocating income in this manner is an example of a separately stated item.

Question 14

Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of $42,000 and a value of $100,000.Kristen and Morgan both have a basis of $100,000 in their partnership interests.

Question 15

A partnership reports each partner's share of income to the partner on a Form 1099-MISC.

Question 16

In a limited liability company, all members are protected from all debts of the LLC unless they personally guaranteed the debt.

Question 17

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

Question 18

If a partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.

Question 19

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding items such as depreciation methods, treatment of research and experimental costs, and the § 754 election.

Question 20

A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.

Question 21

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.

Question 22

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

Question 23

If a partnership allocates losses to the partners, the partners first applies the passive loss limitations, then the basis limitation, and finally the at-risk limitations.If all three hurdles are met, a partner may deduct the loss.

Question 24

The BMR LLC conducted activities that were eligible for a $20,000 credit for increasing research activities.In addition, the LLC paid foreign taxes of $1,200.On the partners' Schedules K-1, BMR will allocate the $20,000 credit, and it will provide the necessary information so the partners can calculate the foreign tax credit if they so choose.

Question 25

Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries, because AMT and the foreign tax credit are calculated by the partnership.

Question 26

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.Ashley received a $10,000 cash distribution from the partnership during the year, and her share of partnership income is $15,000.Her share of partnership liabilities on the last day of the partnership year is $20,000.Ashley's outside basis for her partnership interest at the end of the year is $45,000.

Question 27

BRW Partnership reported gross income from operations of $60,000, interest income of $3,000, utilities expense of $20,000, and a charitable contribution of $6,000.On its Schedule K, the partnership reports ordinary business income of $40,000, separately stated interest income ($3,000), and charitable contributions ($6,000).

Question 28

Micah's beginning capital account on his Schedule K-1 is $60,000.During the year, he is allocated $20,000 of partnership income, $8,000 of nondeductible expenses, and a $12,000 share of tax-exempt income.His Schedule K- 1s show allocations of nonrecourse debt of $20,000 (last year) and $30,000 (this year).Micah's ending capital account is $94,000.

Question 29

Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year.Her allocable share of LLC items are as follows: $20,000 of ordinary income, $2,000 tax-exempt interest income, and a $6,000 long-term capital gain.In addition, the LLC distributed $12,000 of cash to Emma during the year.Assuming that the LLC had no liabilities at the beginning or the end of the year, Emma's ending basis in her LLC interest is $76,000.

Question 30

Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership.If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

Question 31

To meet the substantial economic effect tests, a partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital.

Question 32

Belinda owns a 30% profit and loss interest in the BOW LLC, and her basis in the interest is $30,000 excluding her share of the LLC's liabilities.Belinda guarantees a $40,000 LLC debt.Remaining liabilities (not guaranteed by any of the LLC members) are $100,000.Belinda's basis in the LLC is $100,000.

Question 33

Harry's basis in his partnership interest was $10,000 at the beginning of the tax year.For the year, his share of the partnership's loss was $8,000, and he also received a distribution of $4,000.Harry can deduct an $8,000 loss, and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.

Question 34

DDP Partnership reported gross income from operations of $125,000, a long-term capital gain of $5,000, a short-term capital loss of $2,000, and a charitable contribution of $5,000.On its Schedule K, the partnership reports ordinary business income of $120,000, a long-term capital gain of $5,000, and a short-term capital loss of $2,000.

Question 35

Seven years ago, Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years.This year, when his adjusted basis in the property was $250,000, he transferred the property to the newly formed PLA LLC in exchange for a one-third interest in it.PLA incurred $10,000 of transfer taxes and fees related to the property.It must treat the $260,000 basis in the property, fees, and expenses, as new MACRS property depreciable over 27.5 years.

Question 36

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of taxable income.This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Question 37

Julie and Kate form an equal partnership during the current year.Julie contributes cash of $200,000, and Kate contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $60,000.As a result of these transactions, Kate has a basis in her partnership interest of $120,000.

Question 38

Nicholas, a one-third partner, received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Assuming that no loss limitation rules apply, Nicholas reports a $10,000 ordinary loss from partnership operations and the $50,000 guaranteed payment as ordinary income.

Question 39

Syndication costs arise when partnership interests are being marketed to investors.These costs cannot be amortized or deducted on income tax returns.

Question 40

Steve's basis in his SAW Partnership interest is $200,000 including all adjustments at the beginning of the tax year, . His allocable share of partnership items is: ($120,000) of ordinary loss, $6,000 tax-exempt interest income, and a $14,000 long-term capital gain.In addition, during the year, the LLC distributed $20,000 of cash to Steve.Also during the year, Steve's share of partnership debt increased by $10,000.Steve's ending basis in his LLC interest is $80,000.

Question 41

Which one of the following statements is true regarding a partner's personal liability for partnership assets?

A)LLC members can never be liable for entity debts.
B)In a limited partnership, all partners have limited liability for partnership debts.
C)In a limited liability partnership, a partner might be subject to liability for other partners' malpractice.
D)In a general partnership, all partners are liable for entity debts.
E)None of these statements is true.

Question 42

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

A)Depreciable property: The partnership treats the property as newly acquired depreciable property and may claim a § 179 deduction.
B)Unrealized (cash-basis) receivables: The partnership will report a capital gain when the receivable is collected.
C)Inventory (in the partner's hands): The partnership reports ordinary income if the property is held as a capital asset and sold within five years of the contribution date.
D)Land valued at less than its basis: The partnership reports a § 1231 loss if the property is sold at a loss.
E)All of these statements are always true.

Question 43

Maria owns a 60% interest in the KLM Partnership.Four years ago, her father gave her a parcel of land.The gift basis of the land to Maria is $60,000.In the current year, Maria had still not figured out how to use the land for her own personal or business use; consequently, she sold it to the partnership for $50,000.The partnership immediately started using the land as a parking lot for its employees.Maria may recognize her $10,000 loss on the sale.

Question 44

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?

A)$68,000 ordinary income.
B)$78,000 ordinary income.
C)$65,000 ordinary income; $3,000 of long-term capital gains.
D)$75,000 ordinary income; $3,000 of long-term capital gains.

Question 45

Xena and Xavier form the XX LLC.Xena contributes cash of $20,000, land (basis = $40,000; fair market value = $25,000), equipment (basis = $0; fair market value = $35,000), and inventory (basis = $30,000; fair market value = $40,000).Xavier contributed $120,000 of cash.How much is the partnership's basis in the land, equipment, and inventory, and how much is Xena's basis in the partnership interest?

A)$25,000 land, $0 equipment, $30,000 inventory; $55,000 partnership interest.
B)$40,000 land, $0 equipment, $30,000 inventory; $90,000 partnership interest.
C)$25,000 land, $35,000 equipment, $30,000 inventory; $105,000 partnership interest.
D)$40,000 land, $35,000 equipment, $40,000 inventory; $135,000 partnership interest.

Question 46

Gina is a single taxpayer and an active partner in the GMA LLC.Gina's Schedule K-1 reflects a $20,000 ordinary income share, $2,000 of interest income, and a $10,000 guaranteed payment for services.Gina's self-employment income from other sources and modified adjusted gross income is about $300,000.With respect to the income from the LLC, Gina is subject to the 0.9% additional Medicare tax on $30,000 and the 3.8% net investment income tax of $2,000.

Question 47

The total tax burden on entity income is greater for a partner in a partnership (up to 37% for an individual partner) than on a shareholder in a corporation (21% for an individual shareholder), so partnerships are used only in special situations.

Question 48

Which of the following entity owners cannot participate in the management of an entity?

A)A general partner in a general partnership.
B)A member of a limited liability company.
C)A partner in a limited liability partnership.
D)A limited partner in a limited partnership.

Question 49

Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations, they offered Katie a one-third interest in partnership capital if she would come to work for the partnership.On July 1 of the current year, the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?

A)Nontaxable.
B)Carried interest.
C)$25,000 ordinary income.
D)$25,000 long-term capital gain.
E)$25,000 short-term capital gain.

Question 50

Which one of the following statements regarding partnership taxation is incorrect?

A)A partnership is a tax-paying entity for Federal income tax purposes.
B)Partnership income is comprised of ordinary partnership income or loss and separately stated items.
C)A partnership is required to file a return with the IRS.
D)A partner's profit-sharing percentage may differ from the partner's loss-sharing percentage.
E)All of these are correct.

Question 51

Which one of the following is an example of a special allocation of partnership income?

A)The partnership's capital gains and losses are shown separately on Schedule K-1.
B)Distributions from the partnership to the partner are shown on Schedule K-1 line 20.
C)The partnership agreement provides that a partner will report all charitable contributions rather than his 20% distributive share.
D)The Schedule K-1 reports each partner's share of the information they need to calculate the § 199A (qualified business income) deduction.

Question 52

The qualified business income deduction is calculated at the partner level.The partnership reports information the partner needs to calculate the deduction, such as W-2 wages and the unadjusted basis of the partnership's depreciable property.

Question 53

Tim, Al, and Pat contributed assets to form the equal TAP Partnership.Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000).Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000).Pat contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000.Which of the following tax treatments is not correct?

A)Tim's basis in his partnership interest is $120,000.
B)Al realizes and recognizes a loss of $10,000.
C)Pat realizes a gain of $40,000 but recognizes $0 gain.
D)TAP has a basis of $80,000, $50,000, and $0 in the land and property (excluding cash) contributed by Tim, Al, and Pat, respectively.
E)All of these are correct.

Question 54

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.

Question 55

On January 1 of the current year, Anna and Jason form an equal partnership.Anna contributes $50,000 cash and a parcel of land (adjusted basis of $200,000; fair market value of $150,000) in exchange for her interest in the partnership.Jason contributes property (adjusted basis of $180,000; fair market value of $200,000) in exchange for his partnership interest.Which of the following statements is true concerning the income tax results of this partnership formation?

A)Jason recognizes a $20,000 gain on his property transfer.
B)Jason has a $200,000 tax basis for his partnership interest.
C)Anna has a $250,000 tax basis for her partnership interest.
D)Anna realizes and recognizes a $50,000 loss.
E)The partnership has a $150,000 adjusted basis in the land contributed by Anna.

Question 56

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume that the interest is not sold within two years after the time it is granted to the service partner.)

A)A 10% interest in the capital of the partnership that will vest if the partner remains in the partnership for three years.
B)A 20% interest in the future profits of the partnership received in exchange for future services to be performed for the partnership.
C)A 25% interest in the capital of the partnership when there are no restrictions on transferability of the interest.
D)A 30% interest in the capital of the partnership when the partner contributes intangible property with a $0 basis that the partner developed.
E)All of these.

Question 57

DIP LLC reports ordinary income (before guaranteed payments) of $120,000, rent expense of $40,000, and interest income of $4,000 for the year.In addition, DIP paid guaranteed payments of $20,000 to partner Percy.If Percy owns a 40% capital and profits interest, how much income will he report for the year and what is its character?

A)$24,000 ordinary income.
B)$24,000 ordinary income, $1,600 interest income, $20,000 guaranteed payment.
C)$25,600 ordinary income, $8,000 guaranteed payment
D)$32,000 ordinary income, $1,600 interest income.
E)$32,000 ordinary income, $1,600 interest income, $20,000 guaranteed payment.

Question 58

A partnership will take a carryover basis in an asset it acquires when:

A)The partnership acquires the asset through a § 1031 like-kind exchange.
B)A partner owning 25% of partnership capital and profits sells the asset to the partnership.
C)The partnership leases the asset from a partner on a one-year lease.
D)The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a).
E)None of these; the partnership always takes a substituted basis in the assets it receives.

Question 59

Kristie is a 30% partner in the KKM Partnership.During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000.The partnership paid office expenses of $80,000.In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and paid partner Kaylyn $20,000 for administrative services.Kristie reports the following income from KKM during the current tax year.

A)$54,000 ordinary income; $9,000 charitable contribution.
B)$60,000 ordinary income; $9,000 charitable contribution.
C)$33,000 ordinary income.
D)$54,000 ordinary income.

Question 60

Which of the following is an election or calculation made by the partner rather than the partnership?

A)Calculation of a § 199A (qualified business income) deduction amount.
B)Tax treatment (e.g., credit, amortization) of research and experimental costs.
C)The partnership's overall accounting method.
D)Whether to claim a § 179 deduction related to property acquired by the partnership.
E)All of these elections are made by the partnership.

Question 61

Which of the following is not shown on the partnership's Schedule K of Form 1065?

A)The partnership's self-employment income.
B)The partnership's separately stated income and deductions.
C)The partnership's tax preference and adjustment items.
D)The partnership's net operating loss carryforward.
E)The partnership's investment (portfolio) interest expense.

Question 62

Allison is a 40% partner in the BAM Partnership.At the beginning of the tax year, her basis in the partnership interest was $100,000, including her share of partnership liabilities.During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners).In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee.At the end of the year, Allison's share of partnership liabilities decreased by $10,000.Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:

A)$2,000.
B)$50,000.
C)$58,000.
D)$70,000.

Question 63

ABC LLC reported the following items on the LLC's Schedule K: ordinary income, $100,000; interest income, $3,000; long-term capital loss, ($4,000); charitable contributions, $1,000; AMT depreciation adjustment, $10,000; and cash distributions to partners, $50,000.How much will ABC show as net income (loss) on its Analysis of Income (Loss)?

A)$68,000
B)$78,000
C)$95,000
D)$98,000
E)$102,000

Question 64

Ryan is a 25% partner in the ROCC Partnership.At the beginning of the tax year, his basis in the partnership interest was $90,000, including his share of partnership liabilities.During the current year, ROCC reported net ordinary income of $100,000.In addition, ROCC distributed $10,000 to each of the partners ($40,000 total).At the end of the year, Ryan's share of partnership liabilities increased by $10,000.His basis in the partnership interest at the end of the year is:

A)$90,000.
B)$100,000.
C)$115,000.
D)$125,000.
E)$190,000.

Question 65

Sharon contributed property to the newly formed QRST Partnership.The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date.The property was also encumbered by a $90,000 nonrecourse debt, which was transferred to the partnership on that date.Sharon is treated as a general partner.She is allocated 30% of QRST's profits and 20% of QRST's losses.Sharon's basis in the partnership interest after the formation transaction is:

A)$28,000.
B)$37,000.
C)$88,000.
D)$118,000.
E)$127,000.

Question 66

Stephanie is a calendar year cash basis taxpayer.She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end.The partnership's operating income (after deducting guaranteed payments) was $120,000 ($10,000 per month) and $144,000 ($12,000 per month), respectively, for the partnership tax years ended September 30, 2019 and 2020.The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30, 2019 and 2020.How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31, 2019?

A)$60,000
B)$72,000
C)$84,000
D)$90,000
E)$108,000

Question 67

At the beginning of the year, Ryan's capital account balance in the RUS Partnership (in which he owned a 40% interest) was $200,000.During the year, Ryan contributed cash ($40,000) and property (basis = $20,000, fair market value = $30,000).RUS reported ordinary income of $100,000 and tax-exempt income of $6,000.At the end of the year, the partnership distributed $6,000 of cash to Ryan.On the Schedule K-1, the partnership shows that Ryan had a $50,000 share of nonrecourse LLC debt at the end of the year.Using the tax basis method, how much is Ryan's ending capital account balance?

A)$294,000.
B)$296,400.
C)$306,400.
D)$344,000.
E)$346,400.

Question 68

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 of $20,000 cash from the partnership during the year.He is an active general partner and has no passive income or business losses from other sources.For the tax year, Zach will report:

A)A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.
B)An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.
C)A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
D)An ordinary loss of $44,000 and a nontaxable distribution of $20,000.

Question 69

Mark and Addison formed a partnership.Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000.Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash.Three years after the contribution date, the land contributed by Mark is sold by the partnership to a third party for $76,000.How much taxable gain will Mark recognize from the sale?

A)$0
B)$9,000
C)$16,000
D)$24,000
E)$36,000

Question 70

Molly is a 30% partner in the MAP Partnership.During the current tax year, the partnership reported ordinary income of $200,000 before any permitted deduction for guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $20,000 to Molly and made guaranteed payments to partners Molly, Amber, and Pat of $20,000 each ($60,000 total guaranteed payments).How much will Molly's adjusted gross income increase as a result of these items?

A)$36,000
B)$42,000
C)$60,000
D)$62,000
E)$80,000

Question 71

AmCo and BamCo form the AB General Partnership at the start of the current year with a land contribution by BamCo and a cash contribution by AmCo.BamCo's contributed property is subject to a recourse mortgage assumed by the partnership.BamCo has an 80% interest in AB's profits and losses.The land has been held by BamCo for the past 6 years as an investment.It will be used by AB as an operating asset in its parking lot business.Which of the following statements is correct?

A)Immediately after formation, AmCo's basis in the partnership equals the cash that it contributed .
B)Immediately after formation, AmCo 's basis in the partnership equals the cash that it contributed plus AmCo's share of the recourse debt contributed by BamCo.
C)Because the debt is recourse, it can be allocated only to the general partners if one of them personally guarantees the debt.
D)AB's basis in the land contributed by BamCo equals BamCo's basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership.
E)None of these statements is correct.

Question 72

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Her adjusted basis (outside basis) for her partnership interest at year-end is:

A)$36,000.
B)$38,000.
C)$60,000.
D)$70,000.
E)$80,000.

Question 73

Kristie is a 25% member in the KLM LLC.At the end of the year, KLM has accounts payable of $60,000 (recourse to the LLC but not guaranteed by the LLC members), and a nonrecourse debt related to real estate of $300,000 (meets the at risk limitation requirements).In addition, Kristie personally guaranteed a $50,000 liability for KLM's equipment purchases.Which of the following indicates the information that should be reported on Kristie's Schedule K-1 for the year?

A)$15,000 recourse debt, $75,000 qualified nonrecourse financing.
B)$90,000 nonrecourse debt.
C)$90,000 nonrecourse debt, $12,500 recourse financing.
D)$65,000 recourse debt, $75,000 qualified nonrecourse financing.
E)$50,000 recourse debt, $15,000 nonrecourse debt, $75,000 qualified nonrecourse financing.

Question 74

George is a limited partner in the GLH Partnership.His basis is $40,000 before considering the current year operations and includes a $20,000 recourse debt share and a $10,000 nonrecourse debt share.The nonrecourse debt is not treated as qualified nonrecourse financing.GLH reported a $200,000 loss for the year of which George's 40% share is $80,000.George has passive income of $50,000 from another activity (not eligible for the special real estate deduction).He has no business losses for the year from other sources.How much of the $80,000 GLH loss can George deduct this year?

A)$10,000.
B)$30,000.
C)$40,000.
D)$50,000.
E)$80,000.

Question 75

Rebecca is a limited partner in the RST Partnership, which is not publicly traded.Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is ($60,000).Rebecca has a $40,000 adjusted basis (outside basis) for her interest in RST (before deduction of any of the passive losses).Her amount "at risk" is $30,000 (before deduction of any of the passive losses).She also has $25,000 of passive income from other sources.She has no business losses for the year from other sources.How much of her ($60,000) allocable RST loss can Rebecca deduct on her current-year tax return?

A)$25,000
B)$30,000
C)$40,000
D)$60,000

Question 76

Brooke and John formed a partnership.Brooke received a 40% interest in partnership capital and profits in exchange for contributing land (basis of $30,000 and fair market value of $120,000).John received a 60% interest in partnership capital and profits in exchange for contributing $180,000 of cash.Three years after the contribution date, the land contributed by Brooke is sold by the partnership to a third party for $150,000.How much taxable gain will Brooke recognize from the sale?

A)$102,000
B)$90,000
C)$48,000
D)$36,000
E)$12,000

Question 77

Misty and John formed the MJ Partnership.Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $20,000; Misty received a distribution of $12,000 cash from the partnership; and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year.Misty's adjusted basis for her partnership interest at year end is:

A)$48,000.
B)$60,000.
C)$78,000.
D)$88,000.
E)$90,000.

Question 78

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

A)Increased by contributions the partner made to the partnership.
B)Decreased by the amount of guaranteed payments shown on the partner's Schedule K-1.
C)Increased by the partner's share of tax-exempt income.
D)Decreased by any decrease in the partner's share of partnership liabilities.
E)Increased by the partner's share of separately stated income items.

Question 79

Concerning a partnership's Form 1065, which of the following statements is not true?

A)The partnership reconciles its "Income (Loss) per Books" with "Income (Loss) per Return" on Schedule M-1 or M-3.
B)The partnership balance sheet on Schedule L is generally presented on a financial (book) basis.
C)All taxable/deductible partnership income and expense items are reported on Form 1065, page 1.
D)The partnership's equivalent of taxable income is reported in the "Analysis of Income (Loss)."
E)The partnership deducts its allowable business interest expense on Form 1065, page 1, and allocates any excess to the partners for carryover.

Question 80

At the beginning of the year, Heather's tax basis capital account balance in the HEP Partnership was $85,000. During the tax year, Heather contributed property with a basis of $6,000 and a fair market value of $10,000.Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000.At the end of the year, the partnership distributed $15,000 of cash to Heather.In addition, the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather.What is Heather's ending capital account balance determined using the tax basis method?

A)$116,000
B)$120,000
C)$126,000
D)$128,000
E)$138,000