Deck 9: Partnership Formation and Operation

Question 1

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Answer 1

False

Question 2

Formation of a partnership requires legal documentation filed with the Secretary of State.

Answer 2

False

Question 3

Identify which of the following statements is true.

A)Distribution of partnership income in the form of cash to partners is generally tax-free to the partners and the partnership.
B)When partners receive cash distributions from the partnership,they pay taxes on those distributions.
C)If money distributions exceed the partner's basis in the partnership interest,the partner would have to recognize gain on the distribution from the partnership.Such gain is usually an ordinary gain.
D)All of the above are true.

Answer 3

A

Question 4

The definition of a partnership does not include

A)a syndicate.
B)a group.
C)a pool.
D)All of the above are included.

Question 5

Identify which of the following statements is true.

A)Formation of a partnership requires legal documentation.
B)An individual engaged in the active conduct of a business must elect not to be taxed as a partnership.
C)A partnership exists as long as there are at least two individuals or entities engaged in the active conduct of a trade or business or a financial operation,and the business is not a trust or a corporation.
D)All of the above are false.

Question 6

Jeremey is a partner in the Jimmy partnership.Why does he need to know his basis in his partnership interest?

Question 7

Dan purchases a 25% interest in the Haymarket Partnership for $20,000 on January 1,2010,and begins to materially participate in the partnership's business.The Haymarket Partnership uses the calendar year as its tax year.At the time of the purchase,the Haymarket Partnership has $2,000 in liabilities,and Dan's share is 25%.During the year,the Haymarket Partnership incurs $100,000 in losses and its liabilities increase by $4000.What is Dan's basis in his partnership interest on December 31,2010?

Question 8

Identify which of the following statements is true.

A)All of the partners in a limited partnership have limited liability.
B)A limited partnership must have at least two general partners.
C)A limited partnership cannot have a corporate general partner.
D)All of the above are false.

Question 9

A partner's basis for his partnership interest can be negative.

Question 10

Electing large partnership rules differ from other partnership rules in all of the following areas except

A)partnership income reporting.
B)partnership termination.
C)partnership audits.
D)All of the above are large partnership rule differences.

Question 11

Doug purchases a 20% interest in the Quix Partnership for $10,000 on January 1,2019,and begins to materially participate in the partnership's business.The Quix Partnership uses the calendar year as its tax year.At the time of the purchase,the Quix Partnership has $4,000 in liabilities,and Doug's share is 20%.What is Doug's basis in his partnership interest on January 1,2010?

Question 12

Identify which of the following statements is true.

A)Although a partner's basis in the partnership cannot go below zero,a partner's book capital account (equity)may be negative.
B)Tom purchased for cash a 40% capital,profits,and loss interest in the TP General Partnership.His $140,000 basis in his partnership interest includes his $45,000 share of recourse debt and his $30,000 of nonrecourse debt (that is not qualified nonrecourse real estate financing).His at-risk basis cannot be more than $65,000.
C)Terri is a limited partner in the STU Partnership,which manufactures children's toys.Because the partnership is actively involved in a trade or business,Terri's income from the partnership is classified as active income for the passive activity loss rules.
D)All of the above are false.

Question 13

Identify which of the following statements is true.

A)A contribution of services for a partnership interest is a tax-free transaction.
B)For federal income tax purposes,formation of a partnership is governed by Sec.721.
C)When a partnership assumes a liability on property contributed by a partner,the only effect on the contributing partner's basis in his or her partnership interest is that his or her basis will be increased by the amount of the liability assumed by the other partners.
D)All of the above are false.

Question 14

Dan purchases a 25% interest in the Haymarket Partnership for $20,000 on January 1,2010,and begins to materially participate in the partnership's business.The Haymarket Partnership uses the calendar year as its tax year.At the time of the purchase,the Haymarket Partnership has $2,000 in liabilities,and Dan's share is 25%.During the year,the Haymarket Partnership incurs $8,000 in losses and its liabilities increase by $4,000.What is Dan's basis in his partnership interest on December 31,2010?

Question 15

On the first day of the partnership's tax year,Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year.The partnership has $40,000 in recourse liabilities when Karen enters the partnership.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.There is no minimum gain related to the nonrecourse liability.During the year,the partnership incurs a $120,000 loss and a $20,000 increase in liabilities.How much of the loss can Karen report on her tax return for the current year?

A)$30,000
B)$40,000
C)$50,000
D)$60,000

Question 16

On January 1,Helmut pays $2,000 for a 10% capital,profits,and loss interest in a partnership,which has recourse liabilities of $20,000.The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses.In the same year,the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000.Helmut and the partnership use a calendar tax year-end.Helmut's basis at year-end is

A)$1,500.
B)$2,000.
C)$3,500.
D)$3,900.

Question 17

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest.Yong had taken $10,000 of depreciation prior to the contribution.The partnership has no liabilities.As a result of the contribution,Yong must recognize

A)no gain or loss.
B)a $5,000 Sec.1245 gain.
C)a $5,000 capital gain.
D)$10,000 ordinary income.

Question 18

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

A)$10,000.
B)$12,000.
C)$14,000.
D)$30,000.

Question 19

Explain the difference between partnership distributions and distributive shares.

Question 20

Which of the following is false?

A)A large partnership must not be a service partnership.
B)A large partnership must have fewer than 100 partners.
C)A large partnership must not be engaged in commodity trading.
D)A large partnership is subject to a different system of audits.

Question 21

Bob contributes cash of $40,000 and Carol contributes land with a basis of $25,000 and an FMV of $40,000 to become equal partners in the BC Partnership.The partnership immediately obtains a $30,000 mortgage on the land and the partners will share the economic risk of loss equally.What are the two partners' bases in the partnership after these transactions are completed?

Question 22

Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000.The land was subject to a $48,000 mortgage,which was assumed by STUV.No other liabilities existed at the time of contribution.What is Stella's basis in her partnership interest?

A)$0
B)$32,000
C)$52,000
D)$64,000

Question 23

Sarah purchased land for investment in 2008 for $80,000.In 2009 when the FMV of the land was only $70,000,she contributed it to the SL Partnership,which is in the business of developing and selling lots.SL Partnership developed the contributed land and sold it in 2010 for $50,000.What is the amount and character of the gain or loss?

Question 24

Rashad contributes a machine having a basis of $30,000 and an FMV of $25,000 to a partnership in exchange for a 20% interest in partnership capital,profits,and losses.Prior to the contribution,the partnership had recourse liabilities of $20,000.The partnership assumes a $20,000 recourse liability that is owed by Rashad on the machine.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Rashad's basis in his partnership interest is

A)$11,000.
B)$18,000.
C)$22,000.
D)$34,000.

Question 25

Ali,a contractor,builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000.Which of the following statements is correct?

A)Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
B)Ali recognizes no income and the partnership can deduct nothing in the current year.
C)Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense.
D)Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.

Question 26

Kay and Larry each contribute property to become equal partners in the KL General Partnership.Kay contributes office furniture with an adjusted basis of $40,000 and an FMV of $50,000,which she has depreciated using MACRS.Larry contributes land with a basis of $60,000 and an FMV of $50,000,which he had been holding as an investment.The partnership will use the land as a parking lot for their business.
a)What is the partnership's basis in each of the two pieces of property?
b)If the land that Larry contributed is sold four years after the contribution for $45,000,what is the amount and character of the gain or loss which Larry should report?

Question 27

For a 30% interest in partnership capital,profits,and losses,Carol contributes a machine with a basis of $40,000 and an FMV of $80,000.The partnership assumes a $70,000 recourse liability on the machine.At the time of the contribution,the partnership had recourse liabilities of $10,000.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Following the contribution,Carol has

A)a capital loss due to the contribution of $6,000 and a zero basis in the partnership interest.
B)a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest.
C)a $34,000 basis in the partnership interest and no gain or loss.
D)a $43,000 basis in the partnership interest and no gain or loss.

Question 28

Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest.Mario had purchased the inventory on July 2 of last year.His holding period for the partnership interest begins

A)July 2 of last year.
B)July 3 of last year.
C)August 1 of the current year.
D)August 2 of the current year.

Question 29

Identify which of the following statements is true.

A)A partner's relief of debt is treated as if the partner receives a cash distribution.
B)When a partnership assumes any liabilities of the transferor,the transferor has an increase in the basis of his or her partnership interest.
C)Gain recognized by a contributing partner because of the assumption of liabilities by the partnership increases the partnership's basis in the contributed property.
D)All of the above are false.

Question 30

For a 20% interest in partnership capital,profits,and losses,Kasi contributes a machine having a basis of $30,000 and an FMV of $40,000.The partnership also assumes a $24,000 recourse liability secured by the machine.The partnership has $6,000 in recourse liabilities immediately preceding Kasi's contributions.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Kasi's basis in the partnership interest is

A)$10,800.
B)$12,000.
C)$13,200.
D)$30,000.

Question 31

The RT Limited Partnership incurs the following expenses during the time that the partnership is being organized:
Attorneys' fees:
Accountants' fees:
What is the maximum amount that the partnership can deduct as an organization and syndication expense for the first year in which the partnership begins business,assuming the business began on October 1?

Question 32

Jane contributes land with an FMV of $100,000 and a basis of $80,000 to the Green Partnership in exchange for a 25% partnership interest.The partnership assumes the $40,000 mortgage on the land.Mary has a 25% share of partnership liabilities.The Green Partnership has $8,000 in liabilities immediately before Jane's contribution.What is Jane's basis in her partnership interest?

Question 33

Allen contributed land,which was being held for sale to Allen's customers,to a partnership in exchange for a 20% interest.The partnership uses the land in its business for three years and then sells the property.When the property was contributed,it had a basis in Allen's hands of $500,000 and an FMV of $600,000.The partnership sells the land for $700,000.The gain reported by the partnership is

A)$100,000 of ordinary income and $100,000 of Sec.1231 gain.
B)$100,000 of Sec.1231 gain and $100,000 of capital gain.
C)$200,000 of ordinary income.
D)$200,000 of Sec.1231 gain.

Question 34

Jane contributes land with an FMV of $100,000 and a basis of $40,000 to the Green Partnership in exchange for a 25% partnership interest.The partnership assumes the $80,000 mortgage on the land.Mary has a 25% share of partnership liabilities.The Green Partnership has $8,000 in liabilities immediately before Jane's contribution.What is Jane's basis in her partnership interest?

Question 35

Bao had investment land that he purchased in 1990 for $80,000.Two years ago,when the land was contributed to a partnership,the FMV was $50,000.The land is inventory in the hands of the partnership.The partnership then sells the land in the current year for $46,000.The partnership's recognized loss is

A)a $34,000 capital loss.
B)a $34,000 ordinary loss.
C)a $30,000 capital loss and a $4,000 ordinary loss.
D)a $4,000 capital loss and a $30,000 ordinary loss.

Question 36

Albert contributes a Sec.1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest.He had purchased the asset on March 1,2002.His holding period for the partnership interest begins

A)March 1,2002.
B)March 2,2002.
C)June 1 of the current year.
D)June 2 of the current year.

Question 37

Identify which of the following statements is true.

A)The contribution of Sec.1245 property to a partnership triggers recognition of ordinary income by the contributor at the time of the transfer.
B)A partner may not recognize ordinary income when receiving a capital and profits interest in a partnership in exchange for services.
C)When a partnership interest is given to a partner in exchange for services,the partnership can deduct or capitalize the FMV of the services,depending on the nature of the services.
D)All of the above are false.

Question 38

David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital,profits,and losses.The land is subject to a $30,000 recourse liability,which is assumed by the partnership.The partnership has other recourse liabilities of $18,000.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.David must recognize a

A)$3,000 capital gain.
B)$3,000 capital loss.
C)$1,200 capital gain.
D)$1,200 capital loss.

Question 39

Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits.Two weeks later,Karl sells the profits interest for $30,000.In this tax year,Karl must recognize

A)no gain or loss.
B)a $30,000 short-term capital gain.
C)a $30,000 ordinary income.
D)a $30,000 Sec.1231 gain.

Question 40

George receives a 10% limited partnership interest (capital and profits interest)in the HIJ Partnership in return for managing the partnership's rental property.The partnership interest has an FMV of $35,000.What is the amount and character of the income (if any)that George must report as a result of becoming a partner?

Question 41

Charles Jordan files his income tax return on a calendar-year basis.He is a principal partner in a partnership using a tax year ending June 30.Jordan's share of the partnership's ordinary income was $24,000 for the fiscal year ending June 30 of last year and $72,000 for the fiscal year ending June 30 of the current year.Assume the partnership earned its income evenly throughout the year.How much should Jordan report on his Form 1040 for last year as his share of the partnership's ordinary income?

Question 42

Explain the tax consequences for both the service partner and the partnership when a contribution of services is made to the partnership.

Question 43

In computing the ordinary income of a partnership,a deduction is allowed for

A)net Sec.1231 losses.
B)bad debts.
C)foreign income taxes paid.
D)charitable contributions.

Question 44

Jason,a lawyer,provided legal services for the employees of the ABC Partnership during the first six months of the current year.In exchange,he received a 2% capital and profits interest in the partnership.The value of the interest is $5,000.What are the tax consequences to Jason,the ABC Partnership,and the employees of ABC?

Question 45

Bob,Kara,and Mark are partners in the BKM Partnership.Bob is a 40% partner and has a June 30 tax year-end.Kara owns a 40% interest in the partnership and has a September 30 tax year-end,and Mark owns the remaining 20% interest and has an October 31 tax year-end.The partnership does not have a natural business year.What is the required tax year-end for the partnership (if no Sec.444 election is made)?

A)June 30
B)September 30
C)October 31
D)December 31

Question 46

The XYZ Partnership is held by ten partners who have the following capital and profits ownership of the partnership.The tax year-end used by each of the ten partners is also indicated.Assume each partner has used this year-end for at least five years.
What is the required year-end for the XYZ Partnership,assuming that the business has no natural business year and has not filed a Sec.444 election?

Question 47

What are the three rules and their order when determining a partnership tax year?

Question 48

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec.721 nontaxable treatment?

Question 49

Identify which of the following statements is true.

A)The Fisher Partnership is owned equally by four individual partners.Two of the partners have fiscal years ending March 31 and two partners have fiscal years ending June 30.The partnership has a natural business year.The partnership must adopt a calendar year for tax reporting purposes unless a Sec.444 election is made.
B)Partnerships make most of the tax elections for the partnership rather than the partners.
C)A partner can elect the depreciation method to be applied to the partner's share of the partnership's depreciable assets.
D)All of the above are false.

Question 50

A partnership cannot make charitable contributions.

Question 51

The WE Partnership reports the following items for its current tax year:
Expenses
What is the WE Partnership's ordinary income for the current year?

Question 52

Identify which of the following statements is true.

A)Tax-exempt interest received by a partnership is taxable to the partners if distributed.
B)Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items.
C)The amount and character of any gains/losses is determined at the partnership level.
D)All of the above are false.

Question 53

Matt and Joel are equal partners in the MJ Partnership.For the current year ended December 31,the partnership has book income of $80,000,which includes the following deductions: (1)guaranteed payments (salaries)to partners: Matt,$35,000; and Joel,$25,000; and (2)charitable contributions,$6,000.The book income amount does not include any sales of capital assets or Sec.1231 assets or any tax-exempt income.Based on the above information,what amount should be reported as ordinary income on the partnership return?

A)$60,000
B)$80,000
C)$86,000
D)$140,000

Question 54

Dinia has agreed to provide services valued at $30,000 to the L-M Partnership.On January 1 of the current year,she is given a 20% capital and profits interest in the partnership in exchange for her services.The partnership has no liabilities at the time but has assets with a basis of $50,000 and an FMV of $70,000.What are the tax consequences to Dinia and the partnership?

Question 55

Victor and Kristina decide to form VK Partnership.They will be equal partners.Victor contributes a building with a $150,000 FMV and a $105,000 adjusted basis to the partnership.The building has a $60,000 mortgage,which the partnership assumes.Kristina contributes land with a $70,000 FMV and a $95,000 adjusted basis.Kristina will manage the day-to-day activities of the partnership.She will begin to receive a guaranteed payment for her work,starting in the second year of operations,and continuing on as long as she manages the operations of the partnership.Victor and Kristina have agreed that the guaranteed payment will be $10,000 per year.What tax issues should Victor,Kristina,and the partnership consider with respect to the formation and operation of the partnership?

Question 56

When the PDQ Partnership formed,it knew it had a good product,but it was a bit short on cash.After seeing the product,Jim,a CPA,said that he would set up an accounting system for the partnership in exchange for a 15% profits interest in the partnership.The partners agreed to this,as Jim was receiving only a profits interest and not a capital interest in the partnership.Jim's usual fee for this type of service would be approximately $5,000.What tax issues should Jim and the PDQ Partnership consider with respect to the payment made for the services?

Question 57

Identify which of the following statements is true.

A)A partnership cannot have an NOL carryback or carryforward.
B)A partnership cannot make charitable contributions.
C)Dividends received by a partnership from a domestic corporation are included in the partnership's ordinary income.
D)All of the above are false.

Question 58

Identify which of the following statements is true.

A)A partner's distributive share includes the full amount of partnership ordinary income,which she must report on her tax return plus her share of separately stated taxable and tax-exempt items.
B)Sam has a 20% interest in partnership capital and profits but a 40% interest in partnership losses.The partnership has no special allocations or precontribution gains or losses.In a year in which the partnership reports ordinary income of $100,000 and a capital loss of $30,000,Sam's distributive share is $20,000 ordinary income and $12,000 capital loss.
C)The partner's distributive share is the partner's share of any assets distributed by the partnership.
D)All of the above are false.

Question 59

AT Pet Spa is a partnership owned equally by Travis and Ashley.The partnership had the following revenues and expenses this year.Which of the following items are separately stated? Nonseparately stated? What is each partner's distributive share of ordinary income?

Question 60

Mary and Martha,who had been friends for years,decided to open a retail store to sell kitchen and bath items.In June,they spent $500 looking for a suitable location.They paid an attorney $1,500 to have their partnership agreement drawn up,and they paid an accountant $400 to set up their accounting system.During July,they searched for vendors for the merchandise they planned to carry and stocked their shelves.The store opened in August and was immediately successful.They paid the accountant $300 to prepare an income statement for August.What tax issues should the partnership consider with regard to beginning this business?

Question 61

Latoya owns a 10% interest in the ABC Partnership from January 1 through June 30 (the 181st day of the tax year)of the current year (a non-leap year).On July 1,Latoya buys an additional 10% interest in the partnership.The XYZ Partnership's ordinary income is $109,500 and it is earned evenly throughout the year.Latoya's distributive share of the ordinary income is

A)$16,380.
B)$16,425.
C)$16,470.
D)$21,900.

Question 62

Meg and Abby are equal partners in the AM Partnership,which earns $40,000 ordinary income,$6,000 long-term capital gain (LTCG),and $2,000 Sec.1231 loss during the current year.What is the amount and character of income that must be reported on Abby's tax return for this year's partnership operations?

A)$20,000 ordinary income,$3,000 LTCG,$1,000 Sec.1231 loss
B)$19,000 ordinary income,$3,000 LTCG
C)$23,000 ordinary income,$1,000 Sec.1231 loss
D)$22,000 ordinary income

Question 63

Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.

Question 64

On January 2 of the current year,Calloway and Taylor contribute cash equally to form the CT Partnership.Calloway and Taylor share profits and losses in a ratio of 75% and 25%,respectively.The partnership's ordinary income for the year was $40,000.Calloway received a distribution of $5,000 during the year.What is Calloway's share of taxable income for the year?

A)$5,000
B)$10,000
C)$20,000
D)$30,000

Question 65

Identify which of the following statements is false.

A)Jean and Blossom form an equal partnership.Jean contributes $10,000 cash and Blossom contributes property with a $10,000 FMV and a $5,000 basis.When the partnership sells the property contributed by Blossom for $10,000 shortly after the formation,Blossom must include the $5,000 gain in her income.
B)In order to shift income/loss between partners,there must be substantial economic effect.
C)The BB Partnership wants to make a special allocation of $10,000 of long-term capital gain to Bob and a special allocation of $10,000 of ordinary income to Briana.This allocation will have a substantial economic effect.
D)Partners must make up negative balances in their capital accounts upon liquidation of the partnership.

Question 66

On December 1,Antonio,a member of a three-person partnership,purchases investment securities from the partnership for their $37,000 FMV.All partners share profits and losses equally.The securities were acquired by the partnership for $25,000 cash in March of the current year.What amount and character of gain will Antonio recognize because of this transaction?

A)$0 gain
B)$4,000 ordinary income
C)$4,000 short-term capital gain
D)$12,000 ordinary income

Question 67

A partner's "distributive share" is the partner's share of any assets distributed by the partnership.

Question 68

A partner's share of nonrecourse debt increases that partner's share of basis.

Question 69

Tracy has a 25% profit interest and a 20% loss interest in the Dupont Partnership.The Dupont Partnership reports the following income and loss items for the current year:
What is Tracy's distributive share?

Question 70

At the formation of the BD Partnership,Betty contributes land with a basis of $10,000 and an FMV of $30,000 and Dick contributes cash of $30,000.Betty and Dick share profits and losses equally.When the land is sold two years later for $50,000,Betty must recognize a gain of

A)$10,000.
B)$20,000.
C)$30,000.
D)$40,000.

Question 71

William and Irene each contributed $20,000 cash to the WI Partnership on January 1 of last year.William and Irene share profits and losses equally.Last year,the partnership reported tax-exempt interest income of $4,000.This year,each partner receives $1,000 of the tax-exempt interest income in a cash distribution.There are no partnership liabilities and no other income,loss,contributions,or distributions during both years.William's basis in the partnership interest following these transactions is

A)$19,000.
B)$20,000.
C)$21,000.
D)$22,000.

Question 72

Briefly explain the aggregate and entity theories as they relate to partnerships.

Question 73

A partner's basis for his or her partnership interest is increased by his share of the partnership's tax-exempt income.

Question 74

ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.

Question 75

On December 31 of last year,Alex and Jackson become equal partners in the AJ Partnership with assets having a tax basis and FMV of $120,000.The partnership,which deals in securities,had no liabilities at the end of last year.In January of this year,Franklin contributes his investment securities with an FMV of $60,000 (purchased two years ago at a cost of $45,000)to become an equal partner in the new AJF Partnership.The securities,which are inventory to the partnership,are sold on December 15 of the current year for $90,000.What amount and character of gain from the sale of these securities should be allocated to Franklin?

A)$10,000 ordinary income
B)$15,000 capital gain and $10,000 ordinary income
C)$25,000 capital gain
D)$25,000 ordinary income

Question 76

The XYZ Partnership reports the following operating results for the current year: Tai has a 20% profits interest and a 25% loss interest in the XYZ Partnership.His distributive share of ordinary income is

A)$6,800.
B)$8,500.
C)$10,000.
D)$12,500.

Question 77

Mike and Jennifer form an equal partnership.Mike contributes cash of $15,000 and Jennifer contributes land having a $15,000 FMV and a basis of $5,000.If the partnership sells the land three years later for $18,000,what are the tax consequences to Mike and Jennifer?

Question 78

Identify which of the following statements is true.

A)The Hunter Partnership has a net long-term capital gain of $4,000 and a net short-term capital loss of $1,000 for the current tax year.The gain and loss will be netted and the partners will include their proportionate share of the $3,000 net long-term capital gain on their return.
B)The Right Partnership sells a delivery truck and recognizes a gain of $2,000,which represents depreciation recaptured under Sec.1245.The $2,000 gain will retain its identity as a separately stated item.
C)For tax purposes,the partnership takes a carryover basis in the contributed property that references the contributing partner's basis.
D)All of the above are false.

Question 79

What is included in partnership taxable income?

Question 80

Elijah contributes securities with a $90,000 FMV (purchased in 2008 at a cost of $50,000)to become a one-third partner in the EJK Partnership on January 1 of the current year.The securities are sold on December 15 of the current year for $105,000.How much of the partnership's capital gain from the sale of these securities should be allocated to Elijah?