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Exam 20: Forming and Operating Partnerships

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Question 21

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Which of the following would not be classified as a separately stated item?

A) Short-term capital gains.
B) Charitable contributions.
C) MACRS depreciation expense.
D) Guaranteed payments.

E) None of the above
F) A) and C)

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Question 22

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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) True
B) False

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Question 23

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On January 1,20X9,Mr.Blue and Mr.Grey each contributed $100,000 to form the B&G General Partnership.Their partnership agreement states that they will each receive a 50 percent profits and loss interest.The partnership agreement also provides that Mr.Blue will receive an annual $36,000 guaranteed payment.B&G began business on January 1,20X9.For its first taxable year,its accounting records contained the following information: The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30,20X9.B&G repaid $10,000 of the loan on December 15,20X9.Neither of the partners received a cash distribution from B&G in 20X9. Complete the following table related to Mr.Blue's interest in B&G partnership:

On January 1,X9,Gerald received his 50 percent profits and capital interest in High Air,LLC,in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage.High Air reported a $15,000 loss for its X9 calendar year.How much loss can Gerald deduct,and how much loss must he suspend if he only applies the tax basis loss limitation?

Which of the following statements regarding the rationale for adjusting a partner's basis is false?

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

Hilary had an outside basis in LTL General Partnership of $10,000 at the beginning of the year.LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000,a $10,000 reduction in Hilary's share of partnership debt,a cash distribution of $20,000,and tax-exempt income of $3,000.What is Hilary's adjusted basis at the end of the year?

This year,Reggie's distributive share from Almonte Partnership includes $8,000 of interest income,$4,000 of dividend income,and $60,000 of ordinary business income. A.Assume that Reggie materially participates in the partnership.How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax? B.Assume that Reggie does not materially participate in the partnership.How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax?

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

On 12/31/X4,Zoom,LLC,reported a $60,000 loss on its books.The items included in the loss computation were $30,000 in sales revenue,$15,000 in qualified dividends,$22,000 in cost of goods sold,$50,000 in charitable contributions,$20,000 in employee wages,and $13,000 of rent expense.How much ordinary business income (loss) will Zoom report on its X4 return?

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

This year,HPLC,LLC,was formed by H Inc.,P Inc.,L Inc.,and C Inc.Each member had an equal share in the LLC's capital.H Inc.,P Inc.,and L Inc.each had a 30 percent profits interest in the LLC,with C Inc.having a 10 percent profits interest.The members had the following tax year-ends: H Inc.[1/31],P Inc.[5/31],L Inc.[7/31],and C Inc.[10/31].What tax year-end must the LLC use?

In what order are the loss limitations for partnerships applied?

Jay has a tax basis of $14,000 in his partnership interest at the beginning of the partnership tax year.The following amounts of partnership debt were allocated to Jay and are included in his beginning-of-the-year tax basis: (1) recourse debt-$3,000,(2) qualified nonrecourse debt-$1,000,and (3) nonrecourse debt-$500.There were no changes to the debt allocated to Jay during the tax year.If Jay is allocated a $15,000 loss for the current year,how much of the loss will be suspended under the tax basis and at-risk limitations?

ER General Partnership,a medical supplies business,states in its partnership agreement that Erin and Ryan agree to split profits and losses according to a 40/60 ratio.Additionally,the partnership will provide Erin with a $15,000 guaranteed payment for services she provides to the partnership.ER Partnership reports the following revenues,expenses,gains,losses,and distributions for its current taxable year: *The land is a Section 1231 asset. Given these items,answer the following questions: A.Compute Erin's share of ordinary income (loss)and separately stated items.Include her self-employment income as a separately stated item. B.Compute Erin's self-employment income,but assume ER Partnership is a limited partnership and Erin is a limited partner. C.Compute Erin's self-employment income,but assume ER Partnership is an LLC and Erin is personally liable for half of the debt of the LLC.Apply the IRS's proposed regulations in formulating your answer.

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

Which of the following items is subject to the net investment income tax when a partner is not a material participant in the partnership?

Tax elections are rarely made at the partnership level.

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

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income,(2) Decrease for share of separately stated loss items,and (3) Decrease for distributions?