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Exam 9: Forming and Operating Partnerships

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Question 31

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What is the difference between a partner's tax basis and at-risk amount?

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A partner's tax basis is adjusted to inc...

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Question 32

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Fred has a 45% profits interest and 30% 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 $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, the at-risk, and the passive activity loss limitations?

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Fred is allocated 45 percent of the loss...

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Question 33

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Which of the following entities is not considered a flow-through entity?

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

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

Peter, Matt, Priscilla, and Mary began the year in the PMPM General Partnership sharing profits, losses, and capital equally. They each had a tax basis at the beginning of the year of $3,000, $10,000, $8,000, and $11,000 respectively. Early in the year, Mary provided general consulting services to the partnership and received an additional 15 percent profits, losses, and capital interest in the partnership. The liquidation value of her additional interest was $45,000. Later the same year, the partnership received cash contributions of $25,000 from Peter and Matt that it used to repay the partnership's $35,000 recourse debt. According to state law, the partners shared responsibility for this debt in accordance with their loss sharing ratios. What is each partner's tax basis after adjustment for these transactions?

Partnerships tax rules incorporate both the entity and aggregate approaches.

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

Tax elections are rarely made at the partnership level. In formulating partnership tax law, Congress adopted an entity and aggregate approach. Most tax elections for a partnership are made at the partnership level. The requirement that partnerships make most tax elections represents the entity concept.

Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $20,000 ordinary business loss allocation. His tax basis in ABC at the beginning of ABC's most recent tax year was $10,000. Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year, Clint noted that his share of ABC partnership debt changed as follows: recourse debt increased from $0 to $2,000, qualified nonrecourse debt increased from $0 to $3,000, and nonrecourse debt increased from $0 to $3,000. Finally, the Schedule K-1 Clint recently received from ABC reflected a $1,000 cash contribution he made to ABC during the year. Clint is not a material participant in ABC partnership, and he received $10,000 of passive income from another investment during the same year he received the loss allocation from ABC. How much of the $20,000 loss from ABC can Clint deduct currently, and how much of the loss is suspended because of the tax basis, the at-risk, and the passive activity loss limitations?

Which person would generally be treated as a material participant in an activity?

Lloyd and Harry, equal partners, form the Ant World Partnership. During the year, Ant World had the following revenue, expenses, gains, losses, and distributions: Cost of Goods Sold $85,000 Cash Distribution to Harry $15,000 Municipal Bond Interest $1,500 Short-Term Capital Gains $4,500 Employee Wages $40,000 Rent $10,000 Charitable Contributions $25,000 Sales $175,000 Repairs and Maintenance $5,000 Long-Term Capital Gains $12,000 Fines and Penalties $5,000 Guaranteed Payment to Lloyd $25,000 Given these items, what amount of ordinary business income (loss) and what separately-stated items should be allocated to each partner for the year?

This year, HPLC, LLC was formed by H Inc., P Inc., L Inc., and C Inc. Each member had an equal share in the LLC's capital. H Inc., P Inc., and L Inc. each had a 30% profits interest in the LLC with C Inc. having a 10% profits interest. The members had the following tax year-ends: H Inc. [1/31], P Inc. [5/31], L Inc. [7/31], and C Inc. [10/31]. What tax year-end must the LLC use?

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Zinc, LP was formed on August 1, 20X9. When the partnership was formed, Al contributed $10,000 in cash and inventory with a FMV and tax basis of $40,000. In addition, Bill contributed equipment with a FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with a FMV and tax basis of $20,000. Also, Chad contributed land with a FMV of $50,000 and tax basis of $35,000. Finally, Dave contributed a machine, secured by $35,000 of debt, with a FMV of $15,000 and a tax basis of $10,000. What is the total inside basis of all the assets contributed to Zinc, LP?

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) and are also treated as separately-stated items.

On January 1, X9, Gerald received his 50% profits and capital interest in High Air, LLC in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage. High Air reported a $15,000 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation?

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

The character of each separately-stated item is determined at the partner level. The partnership reports the amount and character of items of income and loss flowing through the partnership.

Which requirement must be satisfied in order to specially allocate partnership income or losses to partners?