Law question data bank

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?