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Exam 9: Forming and Operating Partnerships

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Question 51

Multiple Choice

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Which of the following would not be classified as a separately stated item?

A) Short-term capital gains
B) Charitable contributions
C) MACRS depreciation expense
D) Guaranteed payments

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

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Question 52

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Partnership tax rules incorporate both the entity and aggregate approaches.

A) True
B) False

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Question 53

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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 _____.

Jerry, a partner with 30percent capital and profits interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry's tax basis in his partnership interest was $50,000. His current-year Schedule K-1 reported an ordinary loss of $15,000, long-term capital gain of $3,000, qualified dividends of $2,000, $500 of non-deductible expenses, a $10,000 cash contribution, and a reduction of $4,000 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?

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

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 following statements correctly describes the effect these items have on the partner's self-employment earnings (loss) ?

Under proposed regulations issued by the Treasury Department, in which of the following situations should an LLC member be treated as a general partner for self-employment tax purposes?

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

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

This year, HPLC, LLC, was formed by H Incorporated, P Incorporated, L Incorporated, and C Incorporated. Each member had an equal share in the LLC's capital. H Incorporated, P Incorporated, and L Incorporated each had a 30percent profits interest in the LLC, with C Incorporated having a 10percent profits interest. The members had the following tax year-ends: H Incorporated [1/31], P Incorporated [5/31], L Incorporated [7/31], and C Incorporated [10/31]. What tax year-end must the LLC use?

A general partner's share of ordinary business income is similar to investment income; thus, a general partner only includes their guaranteed payments as self-employment income.

Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob's outside basis in Freedom, LLC, is $9,500. This includes his $2,400 one-fourth share of the LLC's debt. Bob's 704(b) capital account is $16,500. If Tom bought Bob's LLC interest for $16,000, what would Tom's outside basis be in Freedom, LLC?

When must a partnership file its return?

At the end of Year 1, Tony had a tax basis of $40,000 in Tall Ladders, Limited Partnership. Tony has a 20 percent profits interest in Tall Ladders. For Year 2, Tall Ladders will pay Tony a $10,000 guaranteed payment for extra services he provides to the partnership. Given the following income statement and balance sheet from Tall Ladders, what is Tony's adjusted tax basis at the end of Year 2?

Zinc, LP was formed on August 1, 20X9. When the partnership was formed, Al contributed $10,000 in cash and inventory with an FMV and tax basis of $40,000. In addition, Bill contributed equipment with an FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with an FMV and tax basis of $20,000. Also, Chad contributed land with an FMV of $50,000 and tax basis of $35,000. Finally, Dave contributed a machine, secured by $35,000 of debt, with an FMV of $15,000 and a tax basis of $10,000. What is the total inside basis of all the assets contributed to Zinc, LP?

Jay has a tax basis of $14,000 in his partnership interest at the beginning of the partnership 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 no changes 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 and at-risk limitations?

On January 1, X9, Gerald received his 50 percent profits and capital interest in High Air, LLC, in exchange for $3,200 in cash and real property with a $4,200 tax basis secured by a $3,200 nonrecourse mortgage. High Air reported a $16,200 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation?

Which of the following statements regarding partnership losses suspended by the tax basis limitation is true?

TQK,LLC, provides consulting services and was formed on 1/31/X5. Aaron and ABC, Incorporated, each hold a 50percent capital and profits interest in TQK. If TQK averaged $29,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?