Question 1

What is the difference between a partner's basis in the partnership interest and a partner's § 704b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

Accepted Answer

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Question 2

The MOG Partnership reports ordinary income of $60,000, long-term capital gain of $12,000, and tax-exempt income of $12,000. The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income. Their allocation of ordinary income will be reduced accordingly, and Olivia will be allocated a proportionately greater share of ordinary income. In other words, each partner will receive allocations totaling one-third of the total $84,000 of partnership income.) This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.
a. Describe the elements that must be included in a partnership agreement in order for an allocation to have economic effect.
b. Discuss whether or not the MOG allocation would be permitted and provide your reasoning.

Accepted Answer

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Question 3

If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.

Accepted Answer

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Quiz 10: Partnerships: Formation, Operations, and Basis

What is the difference between a partner's basis in the partnership interest and a partner's § 704b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.