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Exam 21: Partnerships

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Question 71

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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. -Partner's capital account

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Question 72

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In a limited liability company,all members are protected from all debts of the partnership unless they personally guaranteed the debt.

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Question 73

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Harry and Sally are considering forming a partnership.Both taxpayers use the calendar year and are cash basis taxpayers.The partnership will not be a tax shelter.The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting.Moreover,the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. As their tax adviser,identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

An example of the aggregate concept of partnership taxation is that the partnership makes elections related to depreciation,tax credit calculations (except the foreign tax credit),and whether or not to claim a § 179 deduction.

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating income. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general and one limited partner. g.All partners are jointly and severally liable for entity debts. h.Theory treating the partner and partnership as separate economic units. i.Partner's basis in partnership interest after tax-free contribution of asset to partnership. j.Partnership's basis in asset after tax-free contribution of asset to partnership. k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. m.Allows many unincorporated entities to select their Federal tax status. n.No correct match provided. -General partnership

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. -Outside basis

At the beginning of the year,Heather's "tax basis" capital account balance in the HEP Partnership was $85,000.During the tax year,Heather contributed property with a basis of $6,000 and a fair market value of $10,000.Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000.At the end of the year,the partnership distributed $15,000 of cash to Heather.In addition,the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather.What is Heather's ending capital account balance determined using the "tax basis" method?

Your client owns a parcel of land that has depreciated in value.He wants to know if there is a way he can contribute the property to his partnership,have the partnership sell the property,and convert the existing capital loss into an ordinary loss.He also wants to know if part of the loss would be allocated to his other partners.What is your reaction?

The LN partnership reported the following items of income and deduction during the current tax year: revenues,$300,000; cost of goods sold,$180,000; tax-exempt interest income,$2,000; salaries to employees,$80,000; and long-term capital gain,$10,000.In addition,the partnership distributed $20,000 of cash to 50% partner Nina and $10,000 of cash to 50% partner Len.What is Nina's share of ordinary partnership income and separately stated items?

​The Greene Partnership had average annual gross receipts for the past three years of $4.8 million,and has never had average annual gross receipts above $5 million.One of the partners is Jackson,Inc.,a Subchapter C corporation.Because Greene meets the average annual gross receipts test,it may use the cash method of accounting even though it has a partner that is a Subchapter C corporation.

Stephanie is a calendar year cash basis taxpayer.She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end.The partnership's operating income (after deducting guaranteed payments) was $120,000 ($10,000 per month) and $144,000 ($12,000 per month) ,respectively,for the partnership tax years ended September 30,2016 and 2017.The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30,2016 and 2017.How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31,2016?

Seven years ago,Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years.This year,when his adjusted basis in the property was $250,000,Paul transferred the property to the newly formed PLA LLC in exchange for a one-third interest in the LLC.PLA incurred $10,000 of transfer taxes and fees related to the property.PLA must treat the $260,000 basis in the property,fees,and expenses,as new MACRS property depreciable over 27.5 years.

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. -Required taxable year

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating income. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general and one limited partner. g.All partners are jointly and severally liable for entity debts. h.Theory treating the partner and partnership as separate economic units. i.Partner's basis in partnership interest after tax-free contribution of asset to partnership. j.Partnership's basis in asset after tax-free contribution of asset to partnership. k.Owners are "members." l.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. m.Allows many unincorporated entities to select their Federal tax status. n.No correct match provided. -Syndication costs

A partnership cannot use the cash method of accounting if one of the partners is a C corporation.

Paul sells one parcel of land (basis of $100,000) for its fair market value of $160,000 to a partnership in which he owns a 60% capital interest.Paul held the land for investment purposes.The partnership is in the real estate development business,and will build residential housing (for sale to customers) on the land (the land is inventory to the partnership) .Paul will recognize:

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner,whether it is distributed.

Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership.The partnership reported $200,000 of net income from operations,a $2,000 short-term capital loss,and a $10,000 charitable contribution.In addition,the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy.Assuming the partnership has no beginning or ending liabilities,what is Katherine's basis in her partnership interest at the end of the year?

Morgan is a 50% managing member in the calendar year,cash basis MKK LLC.The LLC received $150,000 income from services and paid the following other amounts. ​ How much will Morgan's adjusted gross income increase as a result of the above items? What amount will be included in Morgan's self-employment tax calculation?

​When it liquidates,a partnership is not generally subject to tax on the appreciation of its assets.