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Exam 20: Forming and Operating Partnerships

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Question 51

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What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income, (2) Decrease for share of separately stated loss items, and (3) Decrease for distributions?

A) 1, 3, 2.
B) 3, 1, 2.
C) 2, 3, 1.
D) 1, 2, 3.

E) B) and C)
F) None of the above

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Question 52

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What is the difference between a partner's tax basis and at-risk amount?

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A partner's tax basis is adjusted to inc...

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Question 53

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Jay has a tax basis of $14,000 in his partnership interest at the beginning of thepartnership tax year. The following amounts of partnership debt were allocated to Jay and are included in his beginning of the year tax basis: (1) recourse debt - $3,000, (2) qualified nonrecourse debt - $1,000, and (3) nonrecourse debt - $500. There were nochanges to the debt allocated to Jay during the tax year. If Jay is allocated a $15,000 loss for the current year, how much of the loss will be suspended under the tax basis andat-risk limitations?

A partnership may use the cash method despite having a corporate partner when the partnership's average gross receipts for the prior three taxable years don't exceed________.

On January 1, 20X9, Mr. Blue and Mr. Grey each contributed $100,000 to form the B&G general partnership. Their partnership agreement states that they will each receive a 50% profits and loss interest. The partnership agreement also provides that Mr. Blue will receive an annual $36,000guaranteed payment. B&G began business on January 1, 20X9. For its first taxable year, its accounting records contained the following information. The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30, 20X9. B&G repaid$10,000 of the loan on December 15, 20X9. Neither of the partners received a cash distribution from B&G in20X9.Complete the following table related to Mr. Blue's interest in B&G partnership:

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

Which of the following statements is true when property is contributed in exchange for a partnership interest?

Greg, a 40% partner in GSS Partnership, contributed land to the partnership in exchange for hispartnership interest when the partnership was formed. At the time, his basis in the land was $30,000 and its FMV was $133,000. Three years after the partnership was formed, GSS Partnership decided to sell the land to an unrelated party for $150,000. When the land is sold, how much of the gainshould be allocated to each partner of GSS Partnership if Sam and Steve are each 30% partners?

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

A partner's self-employment earnings (loss) may be affected by her share of ordinary business income (loss) and any guaranteed payments she receives. The impact of these amounts typically depends on the status of the partner. Which of the followingstatements correctly describes the effect these items have on the partner's self-employment earnings (loss) ?

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.

Which of the following does not adjust a partner's basis?

Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with a FMV of$55,000. Her basis in the land is $20,000. Andrew contributes equipment with a FMV of$12,000 and a building with a FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

In X1, Adam and Jason formed ABC, LLC, a car dealership in Kansas City. In X2, Adam and Jason realized they needed an advertising expert to assist in their business. Thus, the two members offered Cory, a marketing expert, a 1/3 capital interest in their partnership for contributing his expert services. Cory agreed to this arrangement and received his capital interest in X2. If the value of the LLC's capital equals $180,000 when Cory receives his 1/3 capital interest, which of the following tax consequences does not occur in X2?

TQK, LLC provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc. each hold a 50% capital and profits interest in TQK. If TQK averaged $7,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

Partners must generally treat the value of profits interests they receive in exchange forservices as ordinary income.

Fred has a 45% profits interest and 30% capital interest in the SAP Partnership and his tax basis before considering his share of SAP's current year loss is $11,000. Included in his tax basis is a$2,600 share of recourse debt and $5,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $15,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of thetax basis, the at-risk, and the passive activity loss limitations?

If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

What general accounting methods may be used by a partnership and how and by whom are they selected?