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Exam 20: Forming and Operating Partnerships

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Question 31

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Sarah, Sue, and AS Inc. formed a partnership on May 1, 20X9 called SSAS, LP. Now that the partnership is formed, they must determine its appropriate year-end. Sarah has a30% profits and capital interest while Sue has a 35% profits and capital interest. BothSarah and Sue have calendar year-ends. AS Inc. holds the remaining profits and capitalinterest in the LP, and it has a September 30 year-end. What tax year-end must SSAS, LPuse for 20X9 and which test or rule requires this year-end?

A) 12/31, principal partners test.
B) 12/31, majority interest taxable year.
C) 12/31, least aggregate deferral test.
D) 9/30, majority interest taxable year.

E) A) and B)
F) C) and D)

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Question 32

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A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

A) True
B) False

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Question 33

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Which of the following would not be classified as a material participant in an activity?

A partner can generally apply passive activity losses against passive activity income for the year.

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can be offset by the suspended passive losses in the year of sale?

Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP) . In exchange for this interest, Gerald contributed a building with a FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

The least aggregate deferral test uses the profit percentage of each partner to determine the minimum amount of tax deferral for the partner group as a whole in determining the permissible tax year-end of a partnership.

What form does a partnership use when filing an annual informational return?

Tim, a real estate investor, Ken, a dealer in securities, and Hardware, Inc., a retail lumber store form a partnership called HKT, LP. HKT is in the home building business. Timrecently purchased his interest in HKT while the other partners purchased their interest several years ago. During X3, HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes. Which of the following statements best represents how their portion of the gain should be reported to the partner?

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

Which of the following items will affect a partner's tax basis?

Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $20,000 ordinary business loss allocation. His tax basis in ABC at the beginning of ABC's most recent tax year was $10,000. Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year, Clint noted that his share of ABC partnership debt changed asfollows: recourse debt increased from $0 to $2,000, qualified nonrecourse debt increased from $0 to $3,000, and nonrecourse debt increased from $0 to $3,000. Finally, the Schedule K-1 Clint recently received from ABC reflected a $1,000 cash contribution he made to ABC during the year.Clint is not a material participant in ABC partnership, and he received $10,000 of passive income from another investment during the same year he received the loss allocation from ABC. How much of the $20,000 loss from ABC can Clint deduct currently, and how much of the loss is suspended because of the tax basis, the at-risk, and the passive activity loss limitations?

Tax elections are rarely made at the partnership level.

On June 12, 20X9, Kevin, Chris, and Candy Corp. came together to form Scrumptious Sweets General Partnership. Now, Scrumptious Sweets must decide which tax year-end to use. Kevin and Chris have calendar year-ends and each holds a 35% profits and capital interest. However, Candy Corp. has a September 30th year-end and holds the remaining 30% profits and capital interest. What tax year-end must Scrumptious Sweets adopt and what rule mandates this year-end?

Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank contributed $50,000 in cash and $50,000 worth of equipment. Frank's adjusted basis in the equipment was $35,000. Bob contributed $50,000 in cash and $50,000 worth of land.Bob's adjusted basis in the land was $30,000. On 3/15/X4, Soxy Socks sells the land Bob contributed for $60,000. How much gain (loss) related to this transaction will Bob report on his X4 return?

Which of the following does not represent a tax election available to either partners or partnerships?

If a partner participates in partnership activities on a regular, continuous, and substantial basis, then the partnership's activities with respect to this individual partner are notconsidered passive.

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

Lloyd and Harry, equal partners, form the Ant World Partnership. During the year, Ant World had the followin revenue, expenses, gains, losses, and distributions: Given these items, what amount of ordinary business income (loss) and what separately-stated items should be allocated to each partner for the year?

How does a partnership make a tax election for the current year?