Question 1

Identify which of the following statements is true.

Accepted Answer

Option A is false because when a partnership is divided into two or more new partnerships, the resulting partnerships might not be considered new partnerships; Option B is false because a partnership is "publicly traded" if its interests are traded on an established securities exchange as well as other organized markets; Option C is true because 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.

Question 2

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 3

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 4

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 5

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...

Question 6

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, the basis of partnership assets is adjusted to the fair market value of the assets. Since Han purchases a 25% interest in the partnership for $600,000, his share of the partnership's basis adjustment would be calculated as follows:
Fair market value of partnership assets = $1,600,000
25% share of partnership assets = $400,000
Purchase price of 25% interest = $600,000
Excess purchase price = $200,000 (the amount by which the purchase price exceeds Han's share of the fair market value of the assets)
Therefore, Han's share of the basis adjustment would be a $200,000 increase in his share of the partnership assets' basis.

Question 7

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 8

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 9

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 more than 50% of the partnership's capital and profits interest have been sold or exchanged.

Question 10

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 offers limited liability protection to its owners, like a corporation, but it is taxed in a similar way to a partnership.

Question 11

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 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

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 14

A partnership terminates for federal income tax purposes if

Accepted Answer

According to IRC Section 708, 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 the correct answer. Choices A, B, and C do not result in a termination for federal income tax purposes.

Question 15

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 16

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 17

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 18

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

Since Eric sold his entire 70% capital and profits interest to Michelle on October 3, there was a technical termination of the partnership. Therefore, a new partnership is deemed to have been formed immediately after the sale. As a result, Sally will have partnership distributive shares for both periods: the first period will run from April 1 to October 2 (the day before Eric sold his interest) and the second period will run from October 3 to March 31 (the end of the partnership tax year). Sally is not required to conform her tax year with the partnership tax year unless she owns a more than 50% interest in the partnership.

Question 19

When must a partnership make mandatory basis adjustments?

Accepted Answer

Mandatory basis adjustments must be made when there is a sale of a partnership interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more. This is because this type of sale can result in a significant distortion of the partnership's basis in its assets, and the mandatory basis adjustment is intended to correct this distortion. All of the other options listed do not trigger mandatory basis adjustments under the tax code.

Question 20

Which of the following statements is correct?

Accepted Answer

The Sec. 754 election applies to both sales and distributions, allowing the partnership to adjust the basis of its assets when a partnership interest is transferred. A partnership cannot revoke a Sec. 754 election once it's made.

Quiz 10: Special Partnership Issues

Identify which of the following statements is true.

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?

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

Identify which of the following statements is false.

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.

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?

A partnership terminates for federal income tax purposes if

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

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

Identify which of the following statements is true.

When must a partnership make mandatory basis adjustments?

Which of the following statements is correct?