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Exam 9: Forming and Operating Partnerships

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Question 41

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If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

A) Passive activity income
B) Portfolio income
C) Active business income
D) Any of these types of income can be offset
E) None of the choices are correct. The suspended losses disappear when the passive activity is sold.

F) None of the above
G) A) and E)

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Question 42

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On January 1, 20X9, Mr. Blue and Mr. Grey each contributed $100,000 to form the B&G General Partnership. Their partnership agreement states that they will each receive a 50 percent profits and loss interest. The partnership agreement also provides that Mr. Blue will receive an annual $36,000 guaranteed payment. B&G began business on January 1, 20X9. For its first taxable year, its accounting records contained the following information: The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30, 20X9. B&G repaid $10,000 of the loan on December 15, 20X9. Neither of the partners received a cash distribution from B&G in 20X9. Complete the following table related to Mr. Blue's interest in B&G partnership:

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See table below:
Tax basis = Initial c...

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Question 43

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The main difference between a partner's tax basis and at-risk amount is that qualified nonrecourse financing is not included in the at-risk basis amount.

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

Which of the following statements regarding a partner's basis adjustments is true?

Fred has a 45percent profits interest and 30percent capital interest in the SAP Partnership, and his tax basis before considering his share of SAP's current-year loss is $11,000. Included in his tax basis is a $2,600 share of recourse debt and a $5,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $15,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

Lloyd and Harry, equal partners, form the Ant World Partnership. During the year, Ant World had the following revenue, expenses, gains, losses, and distributions: Given these items, what amount of ordinary business income (loss) and what separately stated items should be allocated to each partner for the year?

Which of the following statements regarding capital and profits interests received for services contributed to a partnership is false?

Bob is a general partner in Fresh Foods Partnership and is trying to determine if the income reported on his K-1 should be classified as passive or active trade or business income. List three different criteria that, if met, would allow Bob to treat the income from Fresh Foods as active trade or business income.

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

This year, Reggie's distributive share from Almonte Partnership includes $8,000 of interest income, $4,000 of dividend income, and $60,000of ordinary business income. A. Assume that Reggie materially participates in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax? B. Assume that Reggie does not materially participate in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax?

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

On March 15, 20X9, Troy, Peter, and Sarah formed Picture Perfect General Partnership. This partnership was created to sell a variety of cameras, picture frames, and other photography accessories. The following items were contributed by each partner in exchange for a one-third capital and profits interest:Troy-cash of $3,000, inventory with an FMV and tax basis $5,000, and a building with an FMV of $8,000 and adjusted basis of $10,000. Additionally, the building is secured by a $10,000 mortgage.Peter-cash of $5,000, accounts payable with an FMV and tax basis of $19,000, and land with an FMV and tax basis of $20,000.Sarah-cash of $2,000, accounts receivable with an FMV and tax basis of $1,000, and equipment with an FMV of $26,000 and adjusted basis of $4,000. Also, the equipment is secured by a $23,000 note payable.What is the partnership's inside basis in each asset? How much gain or loss must Picture Perfect recognize? Prepare Picture Perfect's balance sheet reflecting the partners' capital accounts on both a tax basis and 704(b)/FMV basis.

Jerry, a partner with 30 percent capital and profits interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry's tax basis in his partnership interest was $49,000. His current-year Schedule K-1 reported an ordinary loss of $14,000, long-term capital gain of $4,100, qualified dividends of $3,100, $1,600 of non-deductible expenses, a $21,000 cash contribution, and a reduction of $5,100 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

Which of the following would not be classified as a material participant in an activity?

Which of the following does not represent a tax election available to either partners or partnerships?

Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP) . In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

Which of the following items is subject to the net investment income tax when a partner is not a material participant in the partnership?

On March 15, 20X9, Troy, Peter, and Sarah formed Picture Perfect General Partnership. This partnership was created to sell a variety of cameras, picture frames, and other photography accessories. The following items were contributed by each partner in exchange for a one-third capital and profits interest:Troy-cash of $3,100, inventory with an FMV and tax basis $5,100, and a building with an FMV of $8,100 and adjusted basis of $10,100. Additionally, the building is secured by a $10,100 mortgage.Peter-cash of $5,100, accounts payable with an FMV and tax basis of $19,100, and land with an FMV and tax basis of $20,100.Sarah-cash of $2,100, accounts receivable with an FMV and tax basis of $1,100, and equipment with an FMV of $26,100 and adjusted basis of $4,100. Also, the equipment is secured by a $23,100 note payable.What is the partnership's inside basis in each asset? How much gain or loss must Picture Perfect recognize? Prepare Picture Perfect's balance sheet reflecting the partners' capital accounts on both a tax basis and 704(b)/FMV basis.