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Exam 10: Partnerships: Formation, operation, and Basis

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Question 1

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Kaylyn is a 40% partner in the KKM Partnership.During the current year,KKM reported gross receipts of $160,000 and a charitable contribution of $10,000.The partnership paid office expenses of $100,000.In addition,KKM distributed $10,000 each to partners Kaylyn and Kristie,and the partnership paid partner Megan $20,000 for administrative services.Kaylyn reports the following income from KKM during the current tax year:

A) $4,000 ordinary income.
B) $12,000 ordinary income.
C) $8,000 ordinary income;$4,000 charitable contribution.
D) $16,000 ordinary income;$4,000 charitable contribution.
E) None of the above.

F) A) and E)
G) A) and B)

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Question 2

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JLK Partnership incurred $15,000 of organizational costs and $60,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs,and the remaining costs ($10,000 of organizational costs and $55,000 of startup costs)may be amortized over 180 months.

A) True
B) False

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Question 3

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The MOG Partnership reports ordinary income of $60,000,long-term capital gain of $12,000,and tax-exempt income of $12,000.The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income.Their allocation of ordinary income will be reduced accordingly,and Olivia will be allocated a proportionately greater share of ordinary income.(In other words,each partner will receive allocations totaling 1/3 of the total $84,000 of partnership income. )This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses in determining the partnership's net income (loss).This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

The partnership allocates recourse debt among the partners according to the "constructive liquidation scenario."

Roger is a 30% partner in the ROC Partnership.At the beginning of the tax year,Roger's basis in the partnership interest was $60,000,including his share of partnership liabilities.During the current year,ROC reported net ordinary income of $40,000.In addition,ROC distributed $5,000 to each of the partners ($15,000 total) .At the end of the year,Roger's share of partnership liabilities increased by $20,000.Roger's basis in the partnership interest at the end of the year is:

Which of the following partnership owners is personally liable for the entity's debts to general creditors?

Julie owns property that is treated as a capital asset in her hands.She contributed a parcel of land (basis $60,000;fair market value $58,000)to a real estate partnership,which will hold it as inventory.After three years,the partnership sells the land for $56,000.The partnership will recognize a $4,000 ordinary loss on sale of the property.

MEM Partners was formed during the current tax year.It incurred $20,000 of organizational expenses,$100,000 of startup expenses,and $200,000 of syndication costs.Which of the following statements is correct regarding these payments?

The MOP Partnership is involved in leasing heavy equipment under long-term leases of five years or more.Patsy has an adjusted basis for her partnership interest on January 1 of the current year of $600,000,consisting of the following: During the year,the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patsy.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 Patsy deduct? What Code provisions could cause a suspension of the loss?

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

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

Schedule K of Form 1065 reports the separately stated items of a partnership.

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

Rhonda contributes land valued at $90,000 in exchange for a 40% interest in the RW Partnership.The adjusted basis of the land is $80,000 and it was subject to a liability of $20,000,which the partnership assumed.RW reported income of $100,000 for the year.If none of the liabilities are repaid by the end of the year,and if all liabilities are shared equally,Rhonda's basis at the end of the year is $108,000.

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

Cheryl and Nina formed a partnership.Cheryl received a 40% interest in partnership capital and profits in exchange for land with a basis of $60,000 and a fair market value of $80,000.Nina received a 60% interest in partnership capital and profits in exchange for $120,000 of cash.Three years after the contribution date,the land contributed by Cheryl is sold by the partnership to a third party for $90,000.How much taxable gain will Cheryl recognize from the sale?

During the current year,ALF Partnership reported the following items of receipts and expenditures: $200,000 sales,$10,000 utilities,$12,000 rent,$50,000 salaries to employees,$30,000 guaranteed payment to partner Lloyd,investment interest income of $3,000,a charitable contribution of $5,000,and a distribution of $10,000 to partner Frank.Arnold is a 40% partner.What items will be reflected on Arnold's Schedule K-1?

An examination of the RB Partnership's tax books provides the following information for the current year: 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.

At the beginning of the tax year,Wick's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.For the tax year,Wick will report: