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Exam 21: Partnerships

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Question 81

True/False

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Nicholas, a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year, received a guaranteed payment in the current year of $50,000. Partnership income before consideration of the guaranteed payment was $20,000. Nicholas reports a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.

A) True
B) False

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Question 82

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Dan receives a proportionate nonliquidating distribution when the basis of his partnership interest is $30,000. The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500. Dan's basis in the noncash property is:

A) $26,500.
B) $24,000.
C) $20,000.
D) $10,000.
E) None of the above.

F) A) and C)
G) C) and D)

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Question 83

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Tim and Darby are equal partners in the TD Partnership. Partnership income for the year is $60,000. Tim needs cash in order to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion. If the partners agree, it is acceptable for TD to distribute $8,000 to Tim, and no cash or other property to Darby.

If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributes a parcel of this land (basis of $15,000) to a partnership, also to be held as inventory. The fair market value of the property is $12,000 at the contribution date. After three years, the partnership sells the land for $10,000. The partnership will recognize a $5,000 ordinary loss on sale of the property.

In a proportionate nonliquidating distribution of cash and a capital asset, the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Match each of the following statements with the terms below that provide the best definition. -Check the box regulations

The BAM Partnership distributed the following assets to partner Barbie in a proportionate non-liquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $25,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $15,000 each to the two land parcels, and her basis in her partnership interest will be reduced to $0.

What are "syndication costs" and how are they treated for tax purposes?

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.

Anthony's basis in the WAM Partnership interest was $200,000 just before he received a proportionate liquidating Distribution consisting of investment land (basis of $90,000, fair market value of $100,000) , and inventory (basis of $30,000, fair market value of $70,000) . After the distribution, Anthony's recognized gain or loss and his basis in the land and inventory are:

Match each of the following statements with the terms below that provide the best definition. -Partner's capital account

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $40,000) , and land (basis of $40,000, fair market value of $50,000) . In addition, the partnership repays all liabilities, of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume the interest is not sold within two years after the time it is granted to the service partner.)

On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Morgan is a 50% managing member in the calendar year, cash basis MKK LLC. The LLC received $150,000 income from services and paid the following other amounts: $\begin{array}{lc}\text { Rent expense } & \$ 10,000 \\\text { Salary expense to employees } & 40,000 \\\text { Payment to Morgan for services, per the operating agreement } & 30,000\\\text { Distributions to partners, Kristin and Katie }&12,000\\\text { Pavment to 30 \% cash basis partner Katie for tax and accounting services}&10,000\end{array}$ How much will Morgan's adjusted gross income increase as a result of the above items? What amount will be included in Morgan's self­employment tax calculation?

In a limited liability company, all members are protected from all debts of the partnership unless they personally guaranteed the debt.

Kristie is a 30% partner in the KKM Partnership. During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000. The partnership paid office expenses of $80,000. In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and the partnership paid partner Kaylyn $20,000 for administrative services. Kristie reports the following income from KKM during the current tax year:

Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

The partnership reports each partner's share of income to the partner in a single amount on Form 1099.