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Exam 11: Partnerships and Limited Liability Entities

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Question 31

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Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries,as these calculations are made by the partnership.

A) True
B) False

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Question 32

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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.

A) True
B) False

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Question 33

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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?

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.Paul will recognize:

Allison is a 40% partner in the BAM Partnership.At the beginning of the tax year,Allison's basis in the partnership interest was $100,000,including her share of partnership liabilities.During the current year,BAM reported an ordinary loss of $60,000.In addition,BAM distributed $8,000 to Allison and paid partner Brian a $20,000 consulting fee (neither of these amounts was deducted in determining the $60,000 loss from operations) .At the end of the year,Allison's share of partnership liabilities decreased by $10,000.Assuming loss limitation rules do not apply,Allison's basis in the partnership interest at the end of the year is:

Brooke and John formed a partnership.Brooke received a 40% interest in partnership capital and profits in exchange for contributing land (basis of $30,000 and fair market value of $120,000) .John received a 60% interest in partnership capital and profits in exchange for contributing $180,000 of cash.Three years after the contribution date,the land contributed by Brooke is sold by the partnership to a third party for $150,000.How much taxable gain will Brooke recognize from the sale?

Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year.Her allocable share of LLC items are as follows: $20,000 of ordinary income,$2,000 tax-exempt interest income,and a $6,000 long-term capital gain.In addition,the LLC distributed $12,000 of cash to Emma during the year.Assuming the LLC had no liabilities at the beginning or the end of the year,Emma's ending basis in her LLC interest is $76,000.

George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP,LLC (not a publicly-traded partnership interest).The future profits of the partnership are subject to normal operating risks.George will report ordinary income equal to the fair market value of the profits interest,but the capital interest will not be currently taxed to him.

ABC LLC reported the following items on the LLC's Schedule K: ordinary income,$100,000; interest income,$3,000; long-term capital loss,($4,000) ; charitable contributions,$1,000; post-1986 depreciation adjustment,$10,000; and cash distributions to partners,$50,000.How much will ABC show as net income (loss) on its Analysis of Income (Loss) ?

Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

The taxable income of a partnership flows through to the partners,who report the income on their tax returns.

During the current year,MAC Partnership reported the following items of receipts and expenditures: $600,000 sales,$80,000 utilities and rent,$200,000 salaries to employees,$20,000 guaranteed payment to partner Antonio,investment interest income of $4,000,a charitable contribution of $8,000,and a distribution of $30,000 to partner Carl.Antonio is a 25% general partner.Based on this information,what items will be reflected on Antonio's Schedule K-1?

Nicholas,a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year,received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Nicholas reports a $10,000 ordinary loss from partnership operations,and the $50,000 guaranteed payment as ordinary income.

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 30,2013 and 2014.The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30,2013 and 2014.How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31,2013?

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:

Syndication costs arise when partnership interests are being marketed to investors.These costs cannot be amortized or deducted.

Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

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?

A limited partnership offers all partners protection from claims by the LP's creditors.

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset)in her business.She contributes a parcel of this land (basis of $15,000)to a partnership,also to be held as inventory.The fair market value of the property is $12,000 at the contribution date.After three years,the partnership sells the land for $10,000.The partnership will recognize a $5,000 ordinary loss on sale of the property.