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Exam 21: Partnerships

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Question 21

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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) None of these statements is correct.

F) B) and D)
G) A) and D)

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Question 22

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Suzy owns a 25% capital and profits interest in the calendar-year SJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $200,000.On that date,she receives a proportionate nonliquidating current distribution of the following assets:

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Question 23

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On the first day of the current tax year,Melanie's basis in her partnership interest was $85,000.Her Schedule K-1 from the partnership reflected the following items for the current year: share of partnership ordinary loss,$95,000;interest income from money market accounts,$6,000.On her personal tax return,Melanie will report a loss from the partnership of $91,000,and interest income of $6,000.

In a proportionate liquidating distribution in which the partnership is also liquidated,Ralph received cash of $30,000,accounts receivable (basis of $0 and fair market value of $20,000),and a desk (basis of $0 and fair market value of $1,000).Immediately before the distribution,Ralph's basis in the partnership interest was $40,000.Ralph realizes and recognizes a loss of $10,000,and his basis is $0 in both the accounts receivable and the desk.

The partnership allocates recourse debt among the partners according to the "constructive liquidation scenario."

Sharon and Sara are equal partners in the S&S Partnership.On January 1 of the current year,each partner's adjusted basis in S&S was $50,000 (including each partner's $15,000 share of the partnership's $30,000 of liabilities).During the current year,S&S repaid the $30,000 of liabilities and borrowed $20,000 for which Sharon and Sara are equally liable.In the current year ended December 31,S&S also sustained a net operating loss of $25,000 and earned $5,000 of interest and qualified dividend income from investments.If liabilities are shared equally by the partners,on January 1 of the next year how much is each partner's basis in her interest in S&S?

In a proportionate liquidating distribution in which the partnership is also liquidated,Rosie received cash of $20,000 and inventory (basis of $12,000 and fair market value of $17,000).Immediately before the distribution,Rosie's basis in the partnership interest was $50,000.Rosie recognizes a loss of $18,000,and her basis in the inventory is $12,000.

Marianne is a 50% partner in the BAM Partnership.At the beginning of the tax year,Marianne's basis in the partnership interest was $200,000,including her share of partnership liabilities.During the current year,BAM reported an ordinary loss of $100,000.In addition,BAM distributed $10,000 to Marianne and paid partner Barry a $20,000 consulting fee (neither of these amounts was deducted in determining the $100,000 loss from operations) .At the end of the year,Marianne's share of partnership liabilities decreased by $30,000.Assuming loss limitation rules do not apply,Marianne's basis in the partnership interest at the end of the year is:

Generally,gain is recognized on a proportionate current or liquidating distribution only if the cash distributed exceeds the partner's basis in the partnership interest.

Meagan purchased her partnership interest from Lisa on the first day of the current year for $30,000 cash.She received a $15,000 cash distribution from the partnership during the year,and her share of partnership income is $12,000.If her share of partnership liabilities on the last day of the partnership year is $10,000,her outside basis for her partnership interest at the end of the year is $27,000.

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's tax basis in her interest is $42,000;Morgan's tax basis is $78,000.

Schedule K of Form 1065 reports the separately stated items of a partnership.

Larry's partnership interest basis is $60,000.Larry receives a proportionate,liquidating distribution from a liquidating partnership of $45,000 cash and inventory having a basis of $30,000 to the partnership and a fair market value of $28,000.Larry assigns a basis of $15,000 to the inventory and recognizes no gain or loss.

On January 1 of the current year,Sarah and Bart form an equal partnership.Sarah makes a cash contribution of $60,000 and a property contribution (adjusted basis of $160,000;fair market value of $140,000) in exchange for her interest in the partnership.Bart contributes property (adjusted basis of $120,000;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?

Bill's basis in his 20% interest in the BMW Partnership is $10,000 on the first day of the current tax year.The partnership reports "book" (GAAP)income of $60,000.The partnership "book" income is net of a deduction for a guaranteed payment made to Bill of $40,000.If there are no other differences between book and tax income,Bill's ending basis in his partnership interest is $22,000,and he reports income items from the partnership totaling $52,000.

Syndication costs arise when partnership interests are being marketed to investors.These costs are amortized over 180 months.

A distribution can be "proportionate" even if only one partner receives assets from the partnership.

Your client has operated a sole proprietorship for several years,and is now interested in raising capital for expansion.He is considering forming either a C corporation or an LLC.

In a proportionate liquidating distribution,RST Partnership distributes to partner Rita cash of $10,000,accounts receivable (basis of $0 and fair market value of $20,000),and land (basis of $25,000 and fair market value of $20,000).Rita's basis was $40,000 before the distribution.On the liquidation,Rita recognizes a gain of $10,000,and her basis is $20,000 in each the land and accounts receivable.

Roxanne contributes land to the newly formed RB Partnership in exchange for a 40% interest.The land has an adjusted basis and fair market value of $75,000 and is subject to a liability of $25,000,which the partnership assumes.None of this liability is repaid at year-end.At the end of the year,the partnership has trade accounts payable of $30,000.Assume all liabilities are allocated proportionately to the partners.Total partnership income for the year is $100,000.What is Roxanne's basis in her partnership interest at the end of the year?