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Exam 10: Partnerships: Formation, operation, and Basis

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Question 31

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On a partnership's Form 1065,which of the following statements is not true?

A) The partnership reconciles its net income (including separately stated items) to book income on Schedule M-1 or M-3.
B) The partnership balance sheet on Schedule L is generally presented on a financial (book) basis.
C) All partnership income and expense items are reported on Form 1065,page 1.
D) The partnership's equivalent of taxable income is reported in the "Analysis of Income (Loss) ."
E) None of the above statements are true.

F) A) and E)
G) C) and D)

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Question 32

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During the current year,MAC Partnership reported the following items of receipts and expenditures: $300,000 sales,$60,000 utilities and rent,$100,000 salaries to employees,$40,000 guaranteed payment to partner Mitchell,investment interest income of $4,000,a charitable contribution of $6,000,and a distribution of $20,000 to partner Chad.Austin is a 40% partner.What items will be reflected on Austin's Schedule K-1?

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The partnership's ordinary taxable incom...

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Question 33

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Molly is a 40% partner in the MAP Partnership.During the current tax year,the partnership reported ordinary income of $210,000 before payment of guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $30,000 to Molly,and paid guaranteed payments to partners Molly,Amber,and Pat of $30,000 each ($90,000 total) .How much will Molly's adjusted gross income increase as a result of the above items?

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 and Morgan each have a basis of $100,000 in their partnership interests.

Each partner's profit-sharing,loss-sharing,and capital-sharing ownership percentages are always the same.

Section 721 provides that,in general,no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

The partnership reports each partner's share of income to the partner in a single amount on Form 1099.

The MOG Partnership reports ordinary income of $60,000,long-term capital gain of $12,000,and tax-exempt income of $12,000.The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income.Their allocation of ordinary income will be reduced accordingly,and Olivia will be allocated a proportionately greater share of ordinary income.(In other words,each partner will receive allocations totaling 1/3 of the total $84,000 of partnership income. )This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.

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

Items that are not required to be passed through separately from a partnership to the partners include AMT adjustments and preferences and taxes paid to foreign countries.

ABC,LLC is equally-owned by three corporations.Two corporations have June 30 fiscal year ends,the third is a calendar-year taxpayer.ABC will use a June 30 year end under the majority partners' tax year rule because more than 50% of the partnership's capital and profits is owned by partners with the same taxable year.

JLK Partnership incurred $15,000 of organizational costs and $75,000 of startup costs in 2012.JKL may deduct $5,000 each of organizational and startup costs,and the remaining costs ($10,000 of organizational costs and $70,000 of startup costs)may be amortized over 180 months.

Fern,Inc. ,Ivy Inc. ,and Jason formed a general partnership.Fern owns a 50% interest and Ivy and Jason each own 25% interests.Fern,Inc.files its tax return on a July 1 - June 30 fiscal year;Ivy Inc.files on a September 1 - August 31 fiscal year;and Jason is a calendar year taxpayer.Which of the following statements is true regarding the taxable year the partnership can choose?

A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

Harry's basis in his partnership interest was $10,000 at the beginning of the tax year.For the year,his share of the partnership's loss was $8,000,and he also received a distribution of $4,000.Harry can deduct an $8,000 loss,and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.

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 must report a $10,000 ordinary loss from partnership operations,and the $50,000 guaranteed payment as ordinary income.

Sarah contributed fully depreciated ($0 basis)property valued at $50,000 to the RSTU Partnership in exchange for a 25% interest in partnership capital and profits.During the first year of partnership operations,RSTU had net taxable income of $200,000 and tax-exempt income of $4,000.The partnership distributed $10,000 cash to Sarah.Her share of partnership recourse liabilities on the last day of the partnership year was $20,000.What is Sarah's adjusted basis (outside basis)for her partnership interest at the end of the tax year?

Jeordie and Kendis created the JK Partnership by contributing $100,000 each.The $200,000 cash was used by the partnership to acquire a depreciable asset.The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg.§ 1.704-1(b)(the "economic effect" Regulations)and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated.The partnership agreement provides that MACRS will be allocated 20% to Jeordie and 80% to Kendis.All other items of partnership income,gain,loss,deduction,and credit will be allocated equally between the partners.In the first year,MACRS is $40,000 and no other operating transactions occur.The property is sold at the end of the year for $160,000 and the partnership is liquidated immediately thereafter.

Greg and Justin are forming the GJ Partnership.Greg contributes $500,000 cash and Justin contributes nondepreciable property with an adjusted basis of $200,000 and a fair market value of $550,000.The property is subject to a $50,000 liability,which is also transferred into the partnership and is shared equally by the partners for basis purposes.Greg and Justin share in all partnership profits equally except for any precontribution gain,which must be allocated according to the statutory rules for built-in gain allocations.

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