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Exam 15: Forming and Operating Partnerships

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Question 31

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Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: TALL LADDERS, LP Income Statement Year 2 $\begin{array}{|l|r|}\hline \text { Sales } & 65,000 \\\hline \text { CoGs } & (47,000) \\\hline \text { Gross Profit } & 18,000 \\\hline \text { Interest Inc ome } & 3,000 \\\hline \text { Dividends } & 5,000 \\\hline \text { Long Term Capital Gain } & 10,000 \\\hline \text { Other Income } & 15,000 \\\hline \text { Total Other Inc ome } & 33,000 \\\hline \text { MACRS Depreciation } & (20,000) \\\hline \text { Guaranteed Payments } & (10,000) \\\hline \text { Charitable Contribution } & (10,000) \\\hline \text { Fines and Penalties } & (4,500) \\\hline \text { Other Expenses } & (8,500) \\\hline \text { Total other Expenses } & (53,000) \\\hline \text { Net Income (Loss) } & (2,000) \\\hline\end{array}$ Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

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($28,000),...

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Question 32

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The character of each separately-stated item is determined at the partner level.

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B) False

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Question 33

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

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

A partnership can elect to amortize organization and startup costs; however, syndication costs are not deductible.

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can be offset by the suspended passive losses in the year of sale?

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

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

Partnerships tax rules incorporate both the entity and aggregate approaches.

Lincoln, Inc., Washington, Inc., and Adams, Inc. form Presidential Suites Partnership on February 15, 20X9. Now, Presidential Suites must adopt its required tax year-end. The partners' year-ends, profits interests, and capital interests are reflected in the table below. Given this information, what tax year-end must Presidential Suites use and what rule requires this year-end? $\begin{array} { | l | r | } \hline \text { Cost of Goods Sold } & \$ 85,000 \\\hline \text { Cash Distribution to Harry } & \$ 15,000 \\\hline \text { Municipal Bond Interest } & \$ 1,500 \\\hline \text { Short-Term Capital Gains } & \$ 4,500 \\\hline \text { Employee Wages } & \$ 40,000 \\\hline \text { Rent } & \$ 10,000 \\\hline \text { Charitable Contributions } & \$ 25,000 \\\hline \text { Sales } & \$ 175,000 \\\hline \text { Repairs and Maintenance } & \$ 5,000 \\\hline \text { Long-Term Capital Gains } & \$ 12,000 \\\hline \text { Fines and Penalties } & \$ 5,000 \\\hline \text { Guaranteed Pay ment to Lloyd } & \$ 25,000 \\\hline\end{array}$

What is the rationale for the specific rules partnerships must follow in determining a partnership's taxable year-end?

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Under proposed regulations issued by the Treasury Department, in which of the following situations should an LLC member be treated as a general partner for self-employment tax purposes?

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

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.

Zinc, LP was formed on August 1, 20X9. When the partnership was formed, Al contributed $10,000 in cash and inventory with a FMV and tax basis of $40,000. In addition, Bill contributed equipment with a FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with a FMV and tax basis of $20,000. Also, Chad contributed land with a FMV of $50,000 and tax basis of $35,000. Finally, Dave contributed a machine, secured by $35,000 of debt, with a FMV of $15,000 and a tax basis of $10,000. What is the total inside basis of all the assets contributed to Zinc, LP?

Which person would generally be treated as a material participant in an activity?

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

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.