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Exam 9: Taxation of Partnerships and Partners

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Question 21

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Owners of investment property can elect that Subchapter K not apply to their ventures if each owner retains a separate and undivided ownership interest in the acquisition, operation, and disposition of the property.

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Question 22

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In return for services rendered to it by C, the ABC partnership transfers a one-fourth capital interest to C when it only has one asset, a tract of land with a basis of $20,000 and fair market value of $30,000.The partnership has no liabilities.As a result, ABC's recognized gain and basis in the land, respectively, are

A) $10,000 and $30,000
B) $2,500 and $22,500
C) $2,500 and $27,500
D) $10,000 and $20,000

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Question 23

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W, B, and G, the sole owners of a partnership, use different tax years for their individual returns.They agree to adopt concurrent tax years for their personal returns.The partnership may also change its tax year to coincide with those of the partners without approval from the IRS.

In most instances, a new partnership should use a January 31 year-end in order to maximize deferral of partnership income for calendar year partners.

Partners may agree to specially allocate any existing revenue, expense, or other partnership item in any way they wish when (a) they have owned their interest in the partnership for the entire year, and (b) the allocation has a substantial economic effect.(Assume all partners contributed cash for their capital interests.)

An individual received a 70 percent capital interest in a general partnership by contributing the following: • Investment land purchased 10 years ago for $40,000 and valued at $90,000.There was a $50,000 nonrecourse debt on the land that was also transferred to the partnership. • Services to organize the partnership valued at $22,500. • Business inventory purchased nine months ago for $10,000 and valued at $8,000. This general partner's basis in the partnership after the contribution is

Special allocations of depreciation, depletion, gain, and loss accrued at the date property is contributed to a partnership is optional.

QT Partnership, which operates a retail clothing store, had the following information at year-end: $\begin{array} { l r } \text { Gross sales } & \$ 580,000 \\\text { Cost of goods sold } & 377,000 \\\text { Repairs } & 1,500 \\\text { Depreciation } & 2,000 \\\text { Employee salaries } & 32,000 \\\text { Charitable contributions } & 500 \\\text { Section 1231 gain } & 200 \\\text { Short-term capital gain } & 350 \\\text { Dividends } & 750\end{array}$ What is QT Partnership's ordinary income for the year?

An accountant performed services for EZ partnership and, in lieu of her normal fee, accepted a 10 percent unrestricted capital interest in the partnership with a fair market value of $7,500.How much income from this arrangement should the accountant report on her tax return?

A contributing partner's holding period for an interest in a partnership begins on the date the partnership interest is acquired.

G is a 50% general partner and L is a 50% limited partner in the GL limited partnership.The partnership's ordinary business income for the year is $60,000.G receives a guaranteed payment of $15,000 for managing the partnership and L receives a guaranteed payment of $5,000 for helping to arrange some financing for GL.How much of this income is subject to the self-employment tax?

On January 1, 2011, F exchanged proprietorship equipment ($102,000 market value and $84,000 basis) for a 20 percent capital interest in a partnership.The calendar year partnership's 2011 and 2012 tax depreciation deductions for this equipment total $8,400 (10% of contributed basis) .How much of the $8,400 should be allocated to F?

A has been a partner in the ABC Partnership for only four months.During the current year, the partnership sold investment land that it purchased six years ago and recognized a $100,000 gain.A's distributive share of this gain is long-term capital gain.

Items that may be subject to special tax treatment and that are reported separately on Schedule K of the partnership return include all of the following except

X has the following income and loss items for the current year: Salary from an unrelated corporation $\quad \$ 100,000$ Interest income $\quad$$\quad$ 1,000 Loss from a general partnership in which $X$ materially participated $\quad$$( 20,000 )$ Loss from a limited partnership $\quad$$\quad ( 10,000 )$ X's A.G.I.for the current year is

R exchanged a proprietorship parking lot ($23,000 market value and $15,000 basis) for a 10 percent capital interest in a partnership.The partnership uses the property for four years and then sells it for $25,000.R must recognize income from the sale of

When noncash assets are contributed to a partnership, the entity theory usually applies and, therefore, gain or loss is recognized.

General partnerships are owned solely by two or more general partners, and limited partnerships are owned solely by two or more limited partners.

Two years ago, J contributed a capital asset (FMV $10,000 and basis $16,000) to the JKL Partnership.The asset was a nondepreciable § 1231 asset to the partnership.During the current year, the partnership sold the asset for $8,000.As a result of the sale, the partnership should recognize:

Which of the following is false regarding a guaranteed payment?