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Exam 11: Partnerships and Limited Liability Entities

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Question 41

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Partners' capital accounts should be determined using the same method on Form 1065 Schedule L,Form 1065 Schedule M-2,and the Schedules K-1 prepared for the partners.

A) True
B) False

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Question 42

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A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level,such as for oil and gas depletion or the corporate dividends received deduction.

A) True
B) False

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Question 43

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

In which of the following independent situations would the transaction most likely be characterized as a disguised sale?

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

The sum of the partners' ending basis amounts on all Schedules K-1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations,BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Binita's adjusted basis (outside basis) for her partnership interest at year-end is:

Which of the following statements is always true regarding accounting methods available to a partnership?

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

Ryan is a 25% partner in the ROCC Partnership.At the beginning of the tax year,Ryan's basis in the partnership interest was $90,000,including his share of partnership liabilities.During the current year,ROCC reported net ordinary income of $100,000.In addition,ROCC distributed $10,000 to each of the partners ($40,000 total) .At the end of the year,Ryan's share of partnership liabilities increased by $10,000.Ryan's basis in the partnership interest at the end of the year is:

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership)pay tax on partnership income.

Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations,they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership.She will also receive a 25% interest in future partnership profits.On July 1 of the current year,the unrestricted partnership capital interest (fair market value of $25,000) was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?

Palmer contributes property with a fair market value of $4,000,000 and an adjusted basis of $3,000,000 to AP Partnership.Palmer shares in $1,000,000 of partnership debt under the liability sharing rules,giving him an initial adjusted basis for his partnership interest of $4,000,000.One month after the contribution,Palmer receives a cash distribution from the partnership of $2,000,000.Palmer would not have contributed the property if the partnership had not contractually obligated itself to make the distribution.Assume Palmer's share of partnership liabilities will not change as a result of this distribution.

The MOP Partnership is involved in leasing heavy equipment under long-term leases of five years or more.Patricia has an adjusted basis for her partnership interest on January 1 of the current year of $600,000,consisting of the following: $\begin{array}{lr}\text { Capital account } & \$ 350,000 \\\text { Share of partnersing re course debt } & 50,000 \\\text { Share of partnership nonrecourge debt } & \underline{200,000}\\&\underline{\$600,000}\end{array}$ During the year,the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patricia.Partnership liabilities were the same at the end of the tax year,and the nonrecourse debt is not "qualified nonrecourse debt." If she owns a 60% share of partnership profits,capital,and losses,and is a material participant in the partnership,how much of her share of the operating loss can Patricia deduct? What Code provisions could cause a suspension of the loss? How would your answer change if MOP were an LLC and Patricia had not personally guaranteed any of the debt?

On January 1 of the current year,Anna and Jason form an equal partnership.Anna contributes $50,000 cash and a parcel of land (adjusted basis of $100,000; fair market value of $150,000) in exchange for her interest in the partnership.Jason contributes property (adjusted basis of $180,000; fair market value of $200,000) in exchange for his partnership interest.Which of the following statements is true concerning the income tax results of this partnership formation?

An examination of the RB Partnership's tax books provides the following information for the current year: Rachel is a 30% general partner in partnership capital,profits,and losses.Assume the adjusted basis of her partnership interest is $60,000 at the beginning of the year,and she shares in 30% of the partnership's liabilities for basis purposes.

Mark and Addison formed a partnership.Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000.Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash.Three years after the contribution date,the land contributed by Mark is sold by the partnership to a third party for $76,000.How much taxable gain will Mark recognize from the sale?

Which of the following is an election or calculation made by the partner rather than the partnership?

A partnership is an association formed by two or more taxpayers (who may be any type of entity)to carry on a trade or business.

Samuel is the managing general partner of STU,in which he owns a 25% interest.For the year,STU reported ordinary income of $400,000 (after deducting all guaranteed payments) .In addition,the LLC reported interest income of $10,000.Samuel received a guaranteed payment of $120,000 for services he performed for STU.How much income from self-employment did Samuel earn from STU?