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Exam 21: Partnerships

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Question 1

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

A) True
B) False

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Question 2

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Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. a. Adjusted basis of each partnership asset. b. Operating expenses incurred after entity is formed but before it begins doing business. c. Each partner's basis in the partnership. d. Reconciles book income to "taxable income." e. Tax accounting election made by partnership. f. Tax accounting calculation made by partner. g. Tax accounting election made by partner. h. Does not include liabilities. i. Designed to prevent excessive deferral of taxation of partnership income. j. Amount that may be received by partner for performance of services for the partnership. k. Theory under which a partnership's recourse debt is shared among the partners. l. Will eventually be allocated to partner making tax-free property contribution to partnership. m. Partner's share of partnership items. n. Must generally be satisfied by any allocation to the partners. o. Justification for a tax year other than the required taxable year. p. No correct match is provided. -Business purpose

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PaulCo,DavidCo,and Sean form a partnership with cash contributions of $80,000,$50,000 and $30,000,respectively,and agree to share profits and losses in the ratio of their original cash contributions.PaulCo uses a January 31 fiscal year-end,while DavidCo and Sean use a November 30 and December 31 year-end,respectively.The partnership must use the least aggregate deferral method to determine its year end.

In the current year,Derek formed an equal partnership with Cody.Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000.Derek also contributed $50,000 cash to the partnership.Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000.The land contributed by Derek was encumbered by a $60,000 nonrecourse debt.The land contributed by Cody was encumbered by $40,000 of nonrecourse debt.Assume the partners share debt equally.Immediately after the formation,what is the basis of Cody's partnership interest?

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:

Ken and Lars formed the equal KL Partnership during the current year,with Ken contributing $100,000 in cash and Lars contributing 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.

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 $90,000.

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

Palmer contributes property with a fair market value of $4,000,000 and an adjusted basis of $3,000,000 to AP Partnership.Palmer shares in $3,000,000 of partnership debt under the liability sharing rules,giving him an initial adjusted basis for his partnership interest of $6,000,000.One month after the contribution,Palmer receives a cash distribution from the partnership of $2,000,000.Palmer would not have contributed the property if the partnership had not contractually obligated itself to make the distribution.Assume Palmer's share of partnership liabilities will not change as a result of this distribution. a.​Under the IRS's likely treatment of this transaction, what is the amount of gain or loss that Palmer will recognize because of the $2,000,000 cash distribution? b.What is the partnership's basis for the property after the distribution? c.​If Palmer is unhappy with this result, can you suggest a possible alternative that may provide him with a better answer?

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.She 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.

​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 will be subject to the 0.9% additional Medicare tax on $30,000 and the 3.8% net investment income tax of $2,000.

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. a. Adjusted basis of each partnership asset. b. Operating expenses incurred after entity is formed but before it begins doing business. c. Each partner's basis in the partnership. d. Reconciles book income to "taxable income." e. Tax accounting election made by partnership. f. Tax accounting calculation made by partner. g. Tax accounting election made by partner. h. Does not include liabilities. i. Designed to prevent excessive deferral of taxation of partnership income. j. Amount that may be received by partner for performance of services for the partnership. k. Theory under which a partnership's recourse debt is shared among the partners. l. Will eventually be allocated to partner making tax-free property contribution to partnership. m. Partner's share of partnership items. n. Must generally be satisfied by any allocation to the partners. o. Justification for a tax year other than the required taxable year. p. No correct match is provided. -§ 179 deduction

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. ​

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 the interest is not sold within two years after the time it is granted to the service partner.)

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. a. Adjusted basis of each partnership asset. b. Operating expenses incurred after entity is formed but before it begins doing business. c. Each partner's basis in the partnership. d. Reconciles book income to "taxable income." e. Tax accounting election made by partnership. f. Tax accounting calculation made by partner. g. Tax accounting election made by partner. h. Does not include liabilities. i. Designed to prevent excessive deferral of taxation of partnership income. j. Amount that may be received by partner for performance of services for the partnership. k. Theory under which a partnership's recourse debt is shared among the partners. l. Will eventually be allocated to partner making tax-free property contribution to partnership. m. Partner's share of partnership items. n. Must generally be satisfied by any allocation to the partners. o. Justification for a tax year other than the required taxable year. p. No correct match is provided. -Schedule K-1

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

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. a. Adjusted basis of each partnership asset. b. Operating expenses incurred after entity is formed but before it begins doing business. c. Each partner's basis in the partnership. d. Reconciles book income to "taxable income." e. Tax accounting election made by partnership. f. Tax accounting calculation made by partner. g. Tax accounting election made by partner. h. Does not include liabilities. i. Designed to prevent excessive deferral of taxation of partnership income. j. Amount that may be received by partner for performance of services for the partnership. k. Theory under which a partnership's recourse debt is shared among the partners. l. Will eventually be allocated to partner making tax-free property contribution to partnership. m. Partner's share of partnership items. n. Must generally be satisfied by any allocation to the partners. o. Justification for a tax year other than the required taxable year. p. No correct match is provided. -Organizational costs

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.

​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 (that debt meets the at risk limitation requirements) .In addition,Kristie personally guaranteed a $50,000 liability for KLM's equipment purchases.Which one of the following shows the information that should be reported on Kristie's Schedule K-1 for the year?

On a corporate Form 1120,Schedule M-1 (or M-3) is used to reconcile book and tax income,and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L.How are these reconciliations accomplished on a partnership return? What additional information must be provided?