Question 1

Marc is a calendar-year taxpayer who owns a 30% capital and profits interest in the MN Partnership.Nancy sells the remaining 70% capital and profits interest to Henry on October 31.The partnership year-end is March 31 as permitted by the IRS for business purpose reasons.The MN Partnership

Accepted Answer

The answer of Marc is a calendar-year taxpayer who owns...

Question 2

Which of the following statements is correct?

Accepted Answer

The Sec.754 election applies to both sales and distributions, allowing the basis of the partnership's assets to be adjusted for the purchaser or distributee. A is incorrect because the basis adjustment only occurs upon the sale of a partnership interest, not an annual election. C is incorrect because the election also applies to liquidating distributions. D is incorrect because a Sec.754 election cannot be revoked once made.

Question 3

Identify which of the following statements is false.

Accepted Answer

The statement in option B is false. When using the 50% rule to terminate a partnership, if an interest is sold more than once during the 12-month period, all the sales are aggregated to determine if the threshold has been crossed.

Question 4

Sally is a calendar-year taxpayer who owns a 30% capital and profits interest in the SEM Partnership.Eric sells the remaining 70% capital and profits interest to Michelle on October 3.The partnership year-end is March 31 as permitted by the IRS for business purposes.Which of the following statements is correct?

Accepted Answer

Option A is incorrect because there is no requirement for Sally to conform her tax year with the partnership tax year when she owns less than 50% interest in the partnership.
Option B is incorrect because a partnership is considered a new entity when there is a change in ownership of more than 50% of the capital and profits interests.
Option C is incorrect because Sally holds her interest for the entire year and is entitled to a distributive share of partnership income for the entire year.
Option D is correct because Sally's tax return will include partnership distributive shares for periods ending March 31 and October 3, as she holds her interest for the entire year, and there is a change in ownership of more than 50%. Michelle, the new partner, will be entitled to a distributive share for the period starting on October 4.

Question 5

Sean,Penelope,and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000.In the following year,Penelope sold her one-third interest to Pedro for $225,000.At the time of the sale,the SPJ partnership had the following balance sheet:
  Shortly after Pedro became a partner,SPJ sold the land for $475,000.What are the tax consequences of the sale to Pedro and the partnership (1)assuming there is no Section 754 election in place,and (2)assuming the partnership has a valid Section 754 election?

Accepted Answer

The answer of Sean,Penelope,and Juan formed the SPJ partnership by...

Question 6

The STU Partnership,an electing Large Partnership,has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000,Sec.1231 gain $60,000,ordinary income $20,000,charitable contributions $15,000,and tax-exempt income $2,000.How much will be reported as ordinary income to its partners?

Accepted Answer

B)[$20,000 - 10% (10,000 + 20,000)] = $17,000

Question 7

Which of the following is a valid reason for making a 754 election?

Accepted Answer

The answer of Which of the following is a valid...

Question 8

Quinn and Pamela are equal partners in the QP Partnership.On December 30 of the current year,the QP Partnership agrees to liquidate Quinn's partnership interest for a cash payment on December 30 of each of the next five years.What tax issues should Quinn and Pamela consider with respect to the liquidation of Quinn's partnership interest?

Accepted Answer

The answer of Quinn and Pamela are equal partners in...

Question 9

A partnership terminates for federal income tax purposes if

Accepted Answer

According to IRC Section 708(b)(1)(B), a partnership terminates for federal income tax purposes if within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits. Therefore, choice D is correct. Choices A and B are incorrect because the death of a general partner or state partnership law terminating the partnership may not necessarily result in the termination of the partnership for tax purposes. Choice C is incorrect because gifting a partnership interest does not necessarily result in the termination of the partnership for tax purposes.

Question 10

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000.The partnership has assets with a basis of $1,600,000.What is the amount of the basis adjustment,if the partnership has a 754 election in place?

Accepted Answer

With a 754 election in place, the basis adjustment is equal to the difference between the inside basis (basis of partnership assets) and the outside basis (purchase price of the partnership interest). In this case, Han's purchase price was $600,000, and his share of the inside basis of the partnership assets is 25% of $1,600,000, or $400,000. Therefore, the basis adjustment is $400,000 - $600,000 = -$200,000 for Huang and +$200,000 for Han. Han's share of this adjustment is 25%, or $50,000. However, because Han's basis in the partnership interest was already $600,000, the basis adjustment only increases his share of the basis in partnership assets by $200,000, for a total adjusted basis of $800,000. Therefore, the correct answer is C.

Question 11

The LM Partnership terminates for tax purposes on July 15 when Latasha sells her 60% capital and profits interest to Zoe for $100,000.The partnership has no liabilities,and its assets at the time of termination are as follows:  Marika,a 40% partner in the LM Partnership,has a $64,800 basis in her partnership interest (outside basis)at the time of the termination.She has held her LM Partnership interest for three years at the time of the termination.The bases of Marika and Zoe in the new LM Partnership is:

Accepted Answer

The answer of The LM Partnership terminates for tax purposes...

Question 12

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

Accepted Answer

When a partner purchases an interest in a partnership, the basis of the partner's share of the partnership's assets is adjusted based on the purchase price. Since Patrick purchases a one-third interest in the partnership for $600,000, his share of the partnership assets is $1,800,000 ($600,000 / 0.33). However, the partnership's assets are only valued at $1,500,000, so there is a $300,000 built-in gain. Because the partnership has a 754 election in effect, Patrick's basis in his share of the partnership assets is increased by his share of the built-in gain, which is $100,000 (one-third of $300,000). Therefore, the correct answer is choice D - a $100,000 increase in Patrick's share of the basis in the partnership assets.

Question 13

What are some advantages and disadvantages of making a Section 754 election?

Accepted Answer

The answer of What are some advantages and disadvantages of...

Question 14

Identify which of the following statements is true.

Accepted Answer

A limited liability company (LLC) does combine the legal benefits of the corporate form (limited liability) with the tax benefits of the partnership form (pass-through taxation). A is false because when a partnership is divided into new partnerships, the resulting partnerships may or may not be considered new partnerships depending on the circumstances. B is false because a partnership can be publicly traded without being listed on a securities exchange, such as through an over-the-counter market.

Question 15

When must a partnership make mandatory basis adjustments?

Accepted Answer

The mandatory basis adjustment rules apply only when the sale or exchange of a partnership interest would result in a substantial basis reduction. A substantial basis reduction occurs if the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more. Therefore, the correct answer is D.

Question 16

Identify which of the following statements is true.

Accepted Answer

The statements provided are all false based on the U.S. Internal Revenue Code and regulations governing partnerships. A) The partnership tax year does not close simply because a partner transfers his interest by gift. B) The death of a partner does not automatically terminate a partnership, especially in a two-member partnership where the business can continue with the successor-in-interest. C) The complete liquidation of a partner's interest (even if it's 60%) does not terminate the partnership if other partners remain and continue the business.

Question 17

Rod owns a 65% interest in the RRR Partnership,a general partnership,which he sells to the two remaining partners - Roger and Regis.The three partners have agreed that Rod will receive $160,000 in cash from the sale.Rod's basis in the partnership interest before the sale is $125,000,which includes his $35,000 share of partnership recourse liabilities.The partnership has assets with a $310,000 FMV and a $210,000 adjusted basis.What issues should Rod,Roger,and Regis consider before this sale takes place?

Accepted Answer

The answer of Rod owns a 65% interest in the...

Question 18

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

Accepted Answer

A limited liability company (LLC) offers limited liability protection to its owners, like a corporation. However, it is taxed like a partnership, allowing owners to avoid the double taxation that corporations face. Therefore, an LLC combines the legal benefits of the corporate form with the tax benefits of the partnership form.

Question 19

Patrick purchased a one-third interest in the PPP partnership for $600,000.At the time of the purchase,the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000.This year,PPP sells the land for $1,800,000.What is Patrick's recognized share of the gain on the sale of the land?

Accepted Answer

A)$1,800,000 - 1,500,000 = 300,000 gain.Patrick's share of the gain is $100,000,which is offset by the $100,000 754 adjustment.The 754 adjustment is 600,000 purchase price - (1,500,000/3)= 100,000.

Question 20

The AB,BC,and CD Partnerships merge into the ABCD Partnership.AB (owned by Austin and Ben)contributes assets worth $100,000.BC (owned by Ben and Charlie)contributes assets worth $200,000.CD (owned by Charlie and Dennis)contributes assets worth $300,000.The capital and profits interest in ABCD is owned by: Austin,10%; Ben,30%; Charlie,25%; and Dennis,35%.ABCD Partnership is a continuation of

Accepted Answer

The answer of The AB,BC,and CD Partnerships merge into the...

Quiz 10: Special Partnership Issues

Marc is a calendar-year taxpayer who owns a 30% capital and profits interest in the MN Partnership.Nancy sells the remaining 70% capital and profits interest to Henry on October 31.The partnership year-end is March 31 as permitted by the IRS for business purpose reasons.The MN Partnership

Which of the following statements is correct?

Identify which of the following statements is false.

Which of the following is a valid reason for making a 754 election?

A partnership terminates for federal income tax purposes if

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000.The partnership has assets with a basis of $1,600,000.What is the amount of the basis adjustment,if the partnership has a 754 election in place?

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

What are some advantages and disadvantages of making a Section 754 election?

Identify which of the following statements is true.

When must a partnership make mandatory basis adjustments?

Identify which of the following statements is true.

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.