Question 1

Jamahl has a 65% interest in a partnership. Jamahl sells land to the JK partnership for $70,000. Prior to the sale, the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl. Two years later the partnership sells the land for $123,000. Due to the sale, the partnership will recognize
A)a gain of $13,000.
B)a loss of $53,000.
C)a gain of $33,000.
D)a loss of $20,000.

Accepted Answer

Since Jamahl's interest in the partnership is 65%, he sold land to the partnership for $45,500 ($70,000 x .65).
The adjusted basis to the partnership is $45,500, and when the partnership sells the land for $123,000 two years later, they recognize a gain of $77,500 ($123,000 - $45,500).
Jamahl is responsible for recognizing a gain or loss on the sale of his interest in the partnership, but since he sold the land to the partnership at its FMV, he has no gain or loss to recognize on the sale.
Therefore, the correct answer is (C) a gain of $33,000.

Question 2

Joey and Bob each have 50% interest in a Partnership. Both Joey and the partnership file returns on a calendar year basis. Partnership Q had a $12,000 loss in 2014. Joey's adjusted basis in his partnership interest on January 1, 2014 was $5,000. In 2015, the partnership had a profit of $10,000. Assuming there were no other adjustments to Joey's basis in the partnership, what amount of partnership income (loss)should Joey show on his 2014 and 2015 individual income tax returns?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Joey and Bob each have 50% interest...

Question 3

On April 4, 2014, Joan contributes business equipment (she had purchased on October 23, 2010)having a $45,000 FMV and a $40,000 adjusted basis to the EJK Partnership in exchange for a 25% interest in the capital and profits. The basis of the property and the date the holding period begins for the partnership is
A) 
B) 
C) 
D)

Accepted Answer

The answer of On April 4, 2014, Joan contributes business...

Question 4

Richard has a 50% interest in a partnership, and he materially participates in the partnership's business. Richard's adjusted basis in the partnership was $60,000 at the beginning of the year, including his share of partnership liabilities. There were no distributions to Richard during the year. During the current year, the partnership borrowed $160,000 from a local bank to purchase equipment needed in the business. All of the partners are personally liable for all partnership debts. The partnership incurred a $320,000 loss this year. What amount can Richard claim as a loss from the partnership on his individual tax return this year?
A)$60,000
B)$80,000
C)$140,000
D)$160,000

Accepted Answer

Since Richard materially participates in the partnership's business, he can deduct up to $140,000 of the partnership's loss on his individual tax return. This is calculated by taking his adjusted basis of $60,000 plus his share of the partnership's debt increase of $80,000 (50% of the $160,000 loan), totaling $140,000. Since there were no distributions during the year, Richard's adjusted basis remains at $60,000.

Question 5

In the syndication of a partnership, brokerage and registration fees, printing fees, and legal fees of the underwriter total $50,000. With respect to these fees, the partnership must
A)capitalize the fees, which are not amortizable.
B)deduct $5,000 of the expenses in the accounting period incurred and permanently capitalize the remainder.
C)capitalize and amortize the fees over a period of not less than 60 months.
D)deduct $5,000 of the expenses in the accounting period incurred and amortize the remaining amount over 180 months.

Accepted Answer

The answer of In the syndication of a partnership, brokerage...

Question 6

Clark and Lois formed an equal partnership three years ago. Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV. Three years later the land is sold for $210,000. The tax results to Clark and Lois are
A)$25,000 of gain to both Clark and Lois.
B)$50,000 of gain to both Clark and Lois.
C)$25,000 of gain to Clark and $70,000 gain to Lois.
D)$25,000 of gain to Clark and $95,000 gain to Lois.

Accepted Answer

When the land is sold, Lois will recognize a gain of $70,000 (selling price of $210,000 minus adjusted basis of $90,000), which will be split equally between her and Clark, resulting in a $35,000 gain for each of them. In addition, since Clark's initial contribution was cash, he has no basis in the land and will also recognize a gain of $25,000 (selling price of $210,000 minus his half of the partnership's basis of $80,000). Therefore, the total gains for Clark and Lois will be $25,000 and $95,000 respectively, making choice D the correct answer.

Question 7

Lance transferred land having a $180,000 FMV and a $105,000 adjusted basis, which is subject to a $150,000 mortgage in exchange for a one-third interest in the Trois Partnership. Lance acquired the land in 2002. The partnership owes no other liabilities. Lance, Rhonda, and Zach share profits and losses equally and each has an one-third interest in partnership capital. The tax effect to Lance is
A)no gain or loss recognized.
B)recognized gain of $45,000 on the transfer.
C)recognized gain of $75,000 on the transfer.
D)recognized loss of $45,000 on the transfer.

Accepted Answer

Since Lance transferred property with a FMV of $180,000 in exchange for a one-third interest in the partnership, his share of the partnership interest is worth $60,000 (one-third of the total partnership value of $180,000). This is less than the mortgage of $150,000 that the partnership assumed, so Lance did not receive any cash or property in addition to his partnership interest to recognize any gain or loss. Additionally, since Lance transferred property for a partnership interest, this qualifies as a non-taxable like-kind exchange under Section 721 of the Internal Revenue Code. Therefore, no gain or loss is recognized on the transfer.

Question 8

Martha transferred property with a FMV of $60,000 (adjusted basis $30,000), which is subject to a $40,000 mortgage in exchange for a one-third interest in a partnership. The partnership has no other liabilities. The partners of MNO own the partnership equally. The partnership's basis in the property contributed is
A)$0.
B)$40,000.
C)$30,000.
D)$60,000.

Accepted Answer

The partnership's basis in the contributed property is equal to the adjusted basis of the property to the contributing partner at the time of the contribution, which in this case is $30,000. The mortgage on the property is not taken into consideration when determining the partnership's basis.

Question 9

David and Joycelyn form an equal partnership in the current year. No special allocation is provided for in the partnership agreement. During the year David contributes land having a $90,000 basis and a $100,000 FMV in exchange for the initial partnership interest. In addition, the partnership earns $50,000 of ordinary income while partnership liabilities increase from zero to $30,000 by the end of the tax year. The partnership earns $20,000 of tax-exempt interest during the year. David's basis at the end of the current year is
A)$115,000.
B)$125,000.
C)$130,000.
D)$140,000.

Accepted Answer

The answer of David and Joycelyn form an equal partnership...

Question 10

Ben is a 30% partner in a partnership. The partnership guarantees Ben payments of $25,000 for the year. If the partnership has ordinary income of $15,000 before adjustment for the guaranteed payment, Ben must report
A)ordinary income of $22,000.
B)an ordinary loss of $3,000.
C)ordinary income of $25,000 and a partnership income of $4,500.
D)ordinary income of $25,000 and a partnership loss of $3,000.

Accepted Answer

As a 30% partner, Ben's share of the partnership's income is 30% of the ordinary income of $15,000, which is $4,500. However, because Ben is guaranteed a payment of $25,000, the partnership must first deduct this amount from its income. This results in a partnership loss of $10,000 ($15,000 - $25,000) before considering Ben's share. Therefore, Ben's share of the partnership's loss is $3,000 ($10,000 x 30%). Since Ben's guaranteed payment exceeds his share of the partnership's loss, Ben must report ordinary income of $25,000 ($25,000 - $0) and the partnership must report a loss of $3,000 ($15,000 - $25,000 + $4,500).

Question 11

In 2014, Phuong transferred land having a $150,000 FMV and a $120,000 adjusted basis, which is subject to a $110,000 mortgage in exchange for a one-third interest in the DSF Partnership. Phuong had purchased the land in 2012, but the mortgage was not taken out until 2013. The partnership owes no other liabilities. Phuong, Austin, and Alison share profits and losses equally and each has a one-third interest in partnership capital. The partnership's holding period for the land transferred by partner Phuong commences in
A)2012
B)2013
C)2014
D)The holding period is the same number of years that the partnership has been in existence.

Accepted Answer

The answer of In 2014, Phuong transferred land having a...

Question 12

Jamahl has a 65% interest in a partnership. Jamahl sells land to the partnership for $70,000. Prior to the sale, the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl. Due to the sale, Jamahl will recognize
A)a gain of $20,000.
B)a loss of $20,000.
C)$0, but he will have a carryover loss of $20,000.
D)$0, and he will not have any carryover loss.

Accepted Answer

The answer of Jamahl has a 65% interest in a...

Question 13

At the beginning of this year, Edmond and Samuel were equal partners in a partnership that uses the calendar year as its tax year. On October 1, this year, Joan contributed $48,000 cash for a one-third interest in the partnership. The interests of both Edmond and Samuel drop to one-third. The partnership reports a $36,000 ordinary loss for the current tax year ending December 31. The loss allocation to Samuel (one of the original partners)is
A)$12,000.
B)$13,500.
C)$16,500.
D)$18,000.

Accepted Answer

Since Joan contributed $48,000 for a one-third interest in the partnership on October 1, this year, the partnership existed for 9 months before October 1 and thus the original partners (Edmond and Samuel) were entitled to 9/12 (or 3/4) of the loss allocation. Therefore, the loss allocation for Edmond and Samuel would be (3/4) x $36,000 = $27,000.

Since Edmond and Samuel now both have one-third interests in the partnership, their share of the loss allocation is determined separately. Each of them would be allocated (1/3) x $36,000 = $12,000 of the loss.

Therefore, the loss allocation to Samuel (one of the original partners) is $12,000.

Question 14

Sari transferred an office building with a $500,000 FMV and a $300,000 adjusted basis to the Oak Partnership in exchange for a one-quarter ownership interest. Sari had acquired the building three years earlier and had used it in her sole proprietorship. Sari's holding period for her partnership interest
A)will begin the day after she acquires the partnership interest.
B)will include the holding period of the transferred building.
C)will depend on the election she files.
D)None of the above.

Accepted Answer

According to the tax code, when property is transferred to a partnership in exchange for an ownership interest, the partner's holding period for the interest includes the holding period of the property transferred. Therefore, Sari's holding period for her partnership interest will include the three years that she held the building in her sole proprietorship.

Question 15

Hal transferred land having a $160,000 FMV and a $75,000 adjusted basis which is subject to a $150,000 mortgage in exchange for a one-third interest in the HEF Partnership. Hal acquired the land ten years ago. The partnership owes no other liabilities. Hal, Ellen, and Felix share profits and losses equally and each has an one-third interest in partnership capital. Hal's basis in the one-third partnership interest is
A)$0.
B)($25,000).
C)$75,000.
D)$85,000.

Accepted Answer

The answer of Hal transferred land having a $160,000 FMV...

Question 16

All of the following statements are true with regard to the formation of a partnership except:
A)The partnership's basis in the transferred property carries over from the transferor partners.
B)With regard to capital assets and 1231 assets, the partnership's holding period for the transferred property includes the contributing partner's holding period.
C)The nonrecognition rules apply to both property and services contributed to a partnership.
D)A transfer of property in exchange for a partnership interest causes nonrecognition of gain or loss treatment.

Accepted Answer

The answer of All of the following statements are true...

Question 17

Thomas and Miles are equal partners in a partnership, which uses the calendar year as its tax year. On September 1, this year, Katie contributed $60,000 cash for a one-third interest in the partnership. The partnership reports a $24,000 ordinary loss for the tax year ending on December 31 of this year. The loss allocation to Katie (new partner)is
A)$0.
B)$2,667.
C)$4,000.
D)$8,000.

Accepted Answer

Katie joined the partnership on September 1, so she is only responsible for her share of the loss from that date forward. The partnership's loss for the year is $24,000, and Katie's share is one-third. However, since she was only a partner for 4 months (September to December), her share of the loss is prorated: ($24,000 * 1/3) * (4/12) = $2,667.

Question 18

All of the following are separately stated items that pass through from the partnership to the partners except
A)1231 gains or losses.
B)charitable contributions.
C)capital gains and losses.
D)1245 and 1250 recapture.

Accepted Answer

The answer of All of the following are separately stated...

Question 19

Sandy and Larry each have a 50% interest in SL Partnership. The partnership and the individuals file on a calendar year basis. In 2014, SL Partnership had a $30,000 ordinary loss. Sandy's adjusted basis in her partnership interest on January 1, 2014 was $12,000. In 2015, SL Partnership had ordinary income of $20,000. Assuming there were no other adjustments to Sandy's basis in the partnership, what amount of partnership income (loss)would Sandy show on her 2014 and 2015 individual income tax returns?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Sandy and Larry each have a 50%...

Question 20

George transferred land having a $170,000 FMV and a $60,000 adjusted basis, which is subject to a $150,000 mortgage in exchange for a one-third interest in the GEF Partnership. The partnership owes no other liabilities. George, Elena, and Franz share profits and losses equally and each has a one-third interest in partnership capital. The basis to the partnership of the land transferred by George is
A)$20,000.
B)$60,000.
C)$110,000.
D)$170,000.

Accepted Answer

The answer of George transferred land having a $170,000 FMV...

Quiz 17: Partnerships and S Corporations

Jamahl has a 65% interest in a partnership. Jamahl sells land to the JK partnership for $70,000. Prior to the sale, the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl. Two years later the partnership sells the land for $123,000. Due to the sale, the partnership will recognize

In the syndication of a partnership, brokerage and registration fees, printing fees, and legal fees of the underwriter total $50,000. With respect to these fees, the partnership must

Clark and Lois formed an equal partnership three years ago. Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV. Three years later the land is sold for $210,000. The tax results to Clark and Lois are

Ben is a 30% partner in a partnership. The partnership guarantees Ben payments of $25,000 for the year. If the partnership has ordinary income of $15,000 before adjustment for the guaranteed payment, Ben must report

Jamahl has a 65% interest in a partnership. Jamahl sells land to the partnership for $70,000. Prior to the sale, the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl. Due to the sale, Jamahl will recognize

All of the following statements are true with regard to the formation of a partnership except:

All of the following are separately stated items that pass through from the partnership to the partners except