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Exam 21: Partnerships

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Question 21

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Chelsea owns a 25% capital and profits interest in the calendar-year CJDV Partnership.Her adjusted basis for her partnership interest on July 1 of the current year is $170,000.On that date,she receives a proportionate nonliquidating distribution of the following assets:

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Question 22

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The LN partnership reported the following items of income and deduction during the current tax year: revenues,$200,000; cost of goods sold,$80,000; tax-exempt interest income,$5,000; salaries to employees,$50,000; and long-term capital gain,$5,000.In addition,the partnership distributed $10,000 of cash to 50% partner Nina and $20,000 of cash to 50% partner Len.What is Nina's share of ordinary partnership income and separately stated items?

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The partnership's ordinary taxable incom...

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Question 23

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For income tax purposes,proportionate and disproportionate distributions from a partnership are treated similarly.

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.

Kaylyn is a 40% partner in the KKM Partnership.During the current year,KKM reported gross receipts of $160,000 and a charitable contribution of $10,000.The partnership paid office expenses of $100,000.In addition,KKM distributed $10,000 each to partners Kaylyn and Kristie,and the partnership paid partner Megan $20,000 for administrative services.Kaylyn reports the following income from KKM during the current tax year:

Justin and Kevin formed the equal JK Partnership during the current year,with Justin contributing $60,000 in cash and Kevin contributing land (basis of $40,000,fair market value of $30,000)and equipment (basis of $0,fair market value of $30,000).Kevin recognizes a $20,000 gain on the contribution and his basis in his partnership interest is $60,000.

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.

In a proportionate liquidating distribution,Lina receives a distribution of $10,000 cash,accounts receivable (basis of $0 and fair market value of $12,000) ,and inventory (basis of $30,000 and fair market value of $40,000) .Lina's basis in the entity immediately before the distribution was $80,000.As a result of the distribution,what is Lina's basis in the accounts receivable and inventory,and how much gain or loss does she recognize?

During the current tax year,Jordan and Whitney each contributed $50,000 to form the J&W LLC.Each member has a 50% interest in LLC capital,profits,and losses,except that depreciation expense is allocated 40% to Jordan and 60% to Whitney.During the first year,the LLC reported income (before depreciation expense) of $20,000 and had depreciation expense of $10,000.The LLC incurred recourse debt (that was personally guaranteed by both of the LLC members) of $60,000.Partnership assets are $170,000 at the end of the year.Under the constructive liquidation scenario,how is the recourse debt allocated to Jordan and Whitney?

In the current year,the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities,and $20,000 as a distribution to partner Olivia.In addition,the partnership earned $6,000 of long-term capital gains during the year.Partner Donald owns a 50% interest in the partnership.How much income must Donald report for the tax year?

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

Zach's partnership interest basis is $80,000.Zach receives a proportionate,liquidating distribution from a liquidating partnership of $60,000 cash and inventory having a basis of $30,000 to the partnership and a fair market value of $26,000.Zach assigns a basis of $20,000 to the inventory and recognizes no gain or loss.

The JPM Partnership is a US-based manufacturing company.JPM calculates the domestic production activities deduction (§ 199)and deducts that amount on its Form 1065.

Section 721 provides that no gain or loss is recognized on contribution of property to a partnership in exchange for an interest in the partnership.A disguised sale is an exception to nonrecognition of gain or loss under § 721.

A partnership will take a carryover basis in an asset it acquires when:

Martha receives a proportionate nonliquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000; fair market value of $23,000) .How much gain or loss does Martha recognize,and what is her basis in the distributed property and in her partnership interest following the distribution?

In a proportionate nonliquidating distribution,cash is deemed to be distributed first,followed by unrealized receivables and inventory and,last,capital and other assets.

Melissa is a partner in a continuing partnership.At the end of the current year,the partnership makes a proportionate,nonliquidating distribution to Melissa of $50,000 cash,inventory (basis of $22,000,fair market value of $20,000),and land (basis of $30,000,fair market value of $60,000).Melissa's basis in the partnership interest was $90,000 before the distribution.What is Melissa's basis in the inventory,land,and partnership interest following the distribution?

Maria owns a 60% interest in the KLM Partnership.Four years ago her father gave her a parcel of land.The gift basis of the land to Maria is $60,000.In the current year,Maria had still not figured out how to use the land for her own personal or business use; consequently,she sold the land to the partnership for $75,000.The partnership immediately started using the land as a parking lot for its employees.Maria's recognized gain of $15,000 on the sale is capital-not ordinary.

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash.She received a $10,000 cash distribution from the partnership during the year,and her share of partnership income is $15,000.If her share of partnership liabilities on the last day of the partnership year is $20,000,her outside basis for her partnership interest at the end of the year is $65,000.