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Exam 21: Partnerships

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Question 51

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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.

A) True
B) False

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Question 52

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Randi owns a 40% interest in the capital and profits of the RAY Partnership.Immediately before she receives a proportionate nonliquidating distribution from RAY,the basis for her partnership interest is $60,000.The distribution consists of $45,000 in cash and land with a fair market value of $72,000.RAY's adjusted basis in the land immediately before the distribution is $36,000.As a result of the distribution,Randi recognizes a gain of $21,000.

A) True
B) False

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Question 53

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Which of the following is an election or calculation made by the partner rather than the partnership?

Ken and Lars formed the equal KL Partnership during the current year,with Ken contributing $100,000 in cash and Lars contributing land (basis of $60,000,fair market value of $40,000) and equipment (basis of $0,fair market value of $60,000).Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.

In a proportionate liquidating distribution of his 40% interest in the RST LLC,Stuart received cash ($100,000),land (basis of $60,000 and value of $90,000),and unrealized receivables (basis of $0 and value of $40,000).In addition,Stuart is relieved of his $80,000 share of the LLC's liabilities.Stuart's basis in RST (including his share of LLC liabilities) was $200,000 immediately prior to this distribution. a.How much gain or loss does Stuart recognize on this distribution? b.What is Stuart's basis in the receivables and land he receives in the distribution?

Alyce owns a 30% interest in a continuing partnership.The partnership distributes a $35,000 year-end cash payment to Alyce.In a proportionate nonliquidating distribution,the partnership also distributed property (basis of $20,000,fair market value of $30,000) to Alyce.Immediately before the distributions of cash and property,Alyce's basis in the partnership interest was $60,000.As a result of the distribution,Alyce recognizes:

In the current year,the DOE LLC received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities,a $40,000 guaranteed payment to 50% member Dave,$10,000 to member Ethan for consulting services,and $10,000 as a distribution to member Olivia.In addition,the LLC earned $2,000 of tax-exempt interest income during the year.Dave is the managing member of the LLC.Dave's basis in his LLC interest was $50,000 at the beginning of the year,and includes a $12,000 share of LLC liabilities.At the end of the year,his share of the LLC's liabilities was $20,000. a.How much income must Dave report for the tax year and what is the character of the income? b.What is Dave's basis in his LLC interest at the end of the tax year? c.On what income will Dave's self-employment tax be calculated?

Mark receives a proportionate nonliquidating distribution.At the beginning of the partnership year,the basis of his partnership interest is $100,000.During the year,he received a cash distribution of $40,000 and a property distribution (basis of $30,000,fair market value of $25,000) .In addition,Mark's share of partnership liabilities was reduced by $10,000 during the year.How much gain or loss does Mark recognize;what is his basis in the property he received;and what is his remaining basis in the partnership interest?

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. -Entity concept

In a proportionate liquidating distribution,Sara receives a distribution of $40,000 cash,accounts receivable (basis of $0,fair market value of $30,000) ,and inventory (basis of $50,000,fair market value of $60,000) .Sara's basis in the entity immediately before the distribution was $120,000.As a result of the distribution,what is Sara's basis in the accounts receivable and inventory,and how much gain or loss does she recognize?

An examination of the RB Partnership's tax books provides the following information for the current year: Operating (ordinary) income before guaranteed payments $300,000 Long-term capital gain 6,000 Guaranteed payment to Rachel for services 30,000 Cash distributions to Rachel 20,000 Interest on Colorado state bonds (exempt interest income) 2,000 Charitable contributions made by partnership 10,000 Decrease in partnership liabilities from 1/1-12/31 (20,000) ​ Rachel is a 30% general partner in partnership capital,profits,and losses.Assume the adjusted basis of her partnership interest is $60,000 at the beginning of the year,and she shares in 30% of the partnership's liabilities for basis purposes. a.What is Rachel's adjusted basis for the partnership interest at the end of the year? b.​ How much income must Rachel report on her tax return for the current year? What is the character of the income and what types of tax might apply to it?

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000.The distribution consists of $58,000 cash and noninventory property (adjusted basis to the partnership of $10,000 and fair market value of $12,000) .The partnership has no hot assets.How much gain or loss does Michelle recognize,and what is her basis in the distributed property?

At the beginning of the tax year,Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.For the tax year,Zach will report:

Fern,Inc. ,Ivy,Inc. ,and Jeremy formed a general partnership.Fern owns a 50% interest and Ivy and Jeremy each own 25% interests.Fern,Inc.files its tax return on an October 31 year-end;Ivy,Inc. ,files with a May 31 year-end,and Jeremy is a calendar year taxpayer.Which of the following statements is true regarding the taxable year the partnership can choose?

In a proportionate nonliquidating distribution of his 30% interest in the MNO LLC,Neil received cash ($60,000),land (basis of $40,000 and value of $75,000),and unrealized receivables (basis of $0 and value of $22,000).In addition,Neil is relieved of his $40,000 share of the LLC's liabilities.Neil's basis in MNO (including his share of LLC liabilities) was $80,000 immediately prior to this distribution. a.How much gain or loss does Neil recognize on this distribution? b.What is Neil's basis in the receivables and land he receives in the distribution? c.What is Neil's basis in the LLC interest following the distribution?

For Federal income tax purposes,a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

In a proportionate liquidating distribution,Sam receives a distribution of $30,000 cash,accounts receivable (basis of $0,fair market value of $50,000) ,and land (basis of $20,000,fair market value of $50,000) .In addition,the partnership repays all liabilities,of which Sam's share was $40,000.Sam's basis in the entity immediately before the distribution was $120,000.As a result of the distribution,what is Sam's basis in the accounts receivable and land,and how much gain or loss does he recognize?

Nicholas is a 25% owner in the DDBN LLC (a calendar year entity) .At the end of the last tax year,Nicholas's basis in his interest was $50,000,including his $20,000 share of LLC liabilities.On July 1 of the current tax year,Nicholas sells his LLC interest to Anna for $80,000 cash.In addition,Anna assumes Nicholas's share of LLC liabilities,which,at that date,was $15,000.During the current tax year,DDBN's taxable income is $120,000 (earned evenly during the year) .Nicholas's share of the LLC's unrealized receivables is valued at $6,000 ($0 basis) .At the sale date,what is Nicholas's basis in his LLC interest,how much gain or loss must he recognize,and what is the character of the gain or loss?

Allison and Taylor form a partnership by each making contributions of $90,000 cash to partnership capital.The partnership purchases an asset for $600,000,using the cash and financing the rest with a $420,000 recourse note.The partners expect the partnership to have losses for the first three years of operations and profits thereafter.Allison is allocated 75% of partnership losses until the date when the total partnership profits exceed total partnership losses.After that date,the profits and losses are shared equally between the two partners.How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?