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Question;1115. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest81 Match each of the following statements;with the terms below that provide the best definition.Limited;partnershipCheck the box regulationsProfits interestLimited liability;partnershipAggregate conceptSubstitutedLimited liability companyQualified;nonrecourse debtSyndication costsDisguised saleSeparately stated;itemCarryoverEntity conceptGeneral partnershipMust have at least one general;and one limited partner. Allows many unincorporated entities to select their;Federal tax status. Partner?s percentage allocation of current operating;results. Organizational choice of many large accounting firms. Theory treating;the partnership as a collection of taxpayers joined in an agency relationship.;Partner?s basis in partnership interest after tax-free contribution of asset to;partnership. Owners are ?members.? No correct match provided. Brokerage and;registration fees incurred for promoting and marketing partnership interests.;Transfer of asset to partnership followed by immediate distribution of cash to;partner. Might affect any two partners? tax liabilities in different ways.;Partnership?s basis in asset after tax-free contribution of asset to;partnership. Theory treating the partner and partnership as separate economic;units. All partners are jointly and severally liable for entity debts.;[a] 1. Limited partnership;[b] 2. Check the box;regulations;[c] 3. Profits interest;[d] 4. Limited liability;partnership;[e] 5. Aggregate concept;[f] 6. Substituted;[g] 7. Limited liability;company;[h] 8. Qualified nonrecourse;debt;[i] 9. Syndication costs;[j] 10. Disguised sale;[k] 11. Separately stated item;[l] 12. Carryover;[m] 13. Entity concept;[n] 14. General partnership;1116. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest82 Match each of the following statements;with the terms below that provide the best definition.Organizational;costsRequired taxable yearCost versus percentage depletion decisionInside;basisBusiness purposeStartup costs? 179 deductionEconomic effect;testPrecontribution gainDomestic production activities deductionOutside;basisGuaranteed paymentConstructive liquidation scenarioNo correct match is;provided. Designed to prevent excessive deferral of taxation of partnership;income. Tax accounting election made by partner. Adjusted basis of each;partnership asset. Justification for a tax year other than the required taxable;year. Operating expenses incurred after entity is formed but before it begins;doing business. Tax accounting election made by partnership. Must be satisfied;if a loss item is to be allocated to a partner. Will eventually be allocated to;partner making tax-free property contribution to partnership. Tax accounting;calculation made by partner. Each partner?s basis in the partnership. Amount;that may be received by partner for performance of services for the;partnership. Computation that determines the way recourse debt is shared.;[a] 1. Organizational costs;[b] 2. Required taxable year;[c] 3. Cost versus percentage;depletion decision;[d] 4. Inside basis;[e] 5. Business purpose;[f] 6. Startup costs;[g] 7. ? 179 deduction;[h] 8. Economic effect test;[i] 9. Precontribution gain;[j] 10. Domestic production;activities deduction;[k] 11. Outside basis;[l] 12. Guaranteed payment;[m] 13. Constructive;liquidation scenario;1117. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest83;Greg and Justin are forming the GJ Partnership. Greg contributes $500,000 cash;and Justin contributes nondepreciable property with an adjusted basis of;$200,000 and a fair market value of $550,000. The property is subject to a;$50,000 liability, which is also transferred into the partnership and is shared;equally by the partners for basis purposes. Greg and Justin share in all;partnership profits equally except for any precontribution gain, which must be;allocated according to the statutory rules for built-in gain allocations.;a.;What is;Justin?s adjusted tax basis for his partnership interest immediately after;the partnership is formed?;b.;What is the;partnership?s adjusted basis for the property contributed by Justin?;c.;If the;partnership sells the property contributed by Justin for $600,000, how is the;tax gain allocated between the partners?;1118. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest84;Andrew contributes property with a fair market value of $6,000,000 and an;adjusted basis of $2,000,000 to AP Partnership. Andrew shares in $3,000,000 of;partnership debt under the liability sharing rules, giving him an initial;adjusted basis for his partnership interest of $5,000,000. One month after the;contribution, Andrew receives a cash distribution from the partnership of;$3,000,000. Andrew would not have contributed the property if the partnership;had not contractually obligated itself to make the distribution. Assume;Andrew?s share of partnership liabilities will not change as a result of this;distribution.;a.;Under the;IRS?s likely treatment of this transaction, what is the amount of gain or;loss that Andrew will recognize because of the $3,000,000 cash distribution?;b.;What is the;partnership?s basis for the property after the distribution?;c.;If Andrew is;unhappy with this result, can you suggest a possible alternative that may;provide him with a better answer?;1119. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest85;During the current year, MAC Partnership reported the following items of;receipts and expenditures: $300,000 sales, $20,000 utilities, $30,000 rent;$100,000 salaries to employees, $40,000 guaranteed payment to partner Mitchell;investment interest income of $4,000, a charitable contribution of $6,000, and;a distribution of $20,000 to partner Chad. Austin is a 40% partner. What items;will be reflected on Austin?s Schedule K-1?;1120. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest86;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?;1121. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest87;Crystal contributes land to the newly formed CD Partnership in exchange for a;40% interest. The land has an adjusted basis and fair market value of $200,000;and is subject to a liability of $50,000, which the partnership assumes. None;of this liability is repaid at year-end. At the end of the year, the;partnership has trade accounts payable of $60,000. Assume all liabilities are;allocated proportionately to the partners. Total partnership income for the;year is $300,000. What is Crystal?s basis in her partnership interest at the;end of the year?;1122. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest88;An examination of the RB Partnership?s tax books provides the following;information for the current year;Operating;(ordinary) income before guaranteed payments;$225,000;Long-term;capital gain;4,000;Guaranteed;payment to Barry;25,000;Cash;distributions to each partner;30,000;Interest on;Georgia state bonds (exempt interest income);2,000;Interest;paid on funds used to purchase Georgia state bonds;500;Charitable;contributions made by partnership;4,000;Increase in;partnership liabilities from 1/1-12/31;30,000;Barry is a 30% partner in partnership capital, profits, and losses. Assume the;adjusted basis of his partnership interest is $50,000 at the beginning of the;year, and he shares in 30% of the partnership liabilities for basis purposes.;a.;What is;Barry?s adjusted basis for the partnership interest at the end of the year?;b.;How much;income must Barry report on his tax return for the current year? What is the;character of income?;1123. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest89;Katherine invested $80,000 this year to purchase a 30% interest in the KLM;Partnership. The partnership reported $200,000 of net income from operations, a;$2,000 short-term capital loss, and a $10,000 charitable contribution. In;addition, the partnership distributed $20,000 to Katherine and $10,000 each to;partners Lauren and Missy. Assuming the partnership has no beginning or ending;liabilities, what is Katherine?s basis in her partnership interest at the end;of the year?;1124. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest90;Jamie contributed fully depreciated ($0 basis) property valued at $30,000 to;the JKLM Partnership in exchange for a 40% interest in partnership capital and;profits. During the first year of partnership operations, JKLM had net taxable;income of $80,000 and tax-exempt income of $10,000. The partnership distributed;$20,000 cash to Jamie. Her share of partnership recourse liabilities on the;last day of the partnership year was $13,000. What is Jamie?s adjusted basis;(outside basis) for her partnership interest at the end of the tax year?;1125. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest91;In the current year, the DOE Partnership received revenues of $100,000 and paid;the following amounts: $20,000 in rent and utilities, a $30,000 guaranteed;payment to 50% partner Dave, $6,000 to partner Ethan for consulting services;and $10,000 as a distribution to partner Olivia. In addition, the partnership;earned $4,000 of interest income during the year. Dave?s basis in his;partnership interest was $35,000 at the beginning of the year, and includes a;$10,000 share of partnership liabilities. At the end of the year, his share of;partnership 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 partnership interest at the end of the tax year?;1126. CHAPTER;10?PARTNERSHIPS: FORMATION, OPERATION, AND BASIS Quest92;Sharon and Sara are equal partners in the S&S Partnership. On January 1 of;the current year, each partner?s adjusted basis in S&S was $50,000;(including each partner?s $15,000 share of the partnership?s $30,000 of;liabilities). During the current year, S&S repaid the $30,000 of;liabilities and borrowed $20,000 for which Sharon and Sara are equally liable.;In the current year ended December 31, S&S also sustained a net operating;loss of $25,000 and earned $5,000 of interest income from investments. If;liabilities are shared equally by the partners, on January 1 of the next year;how much is each partner?s basis in her interest in S&S?

 

Paper#59235 | Written in 18-Jul-2015

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