Question 1

Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land.The partnership had purchased the land five years ago for $20,000,but it is worth $28,000 at the time of the distribution.Ariel's predistribution basis is $17,000.How much income will Ariel recognize due to the distribution,and what is her basis in the land?

Accepted Answer

B) Ariel reduces her partnership basis by the cash distribution first ($17,000 - $9,000), and the remaining $8,000 basis in her partnership interest is applied to the land. Her partnership basis will be $0, and no income is recognized.

Question 2

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

Accepted Answer

D) This is a related party loss due to Jamahl's greater than 50% ownership interest. He will not be able to recognize the loss. If the partnership later sells the property at a gain, the partnership will be able to offset the gain by the disallowed loss.

Question 3

Mia is a 50% partner in a partnership with a beginning of the year adjusted basis in her partnership interest of $50,000.For the current year,no distributions are made to partners,and there is no change in partnership liabilities.The partnership incurred a $140,000 ordinary loss for the year.How does Mia treat her loss in excess of basis?

Accepted Answer

C) Any unused losses and deductions due to basis limitations carry over indefinitely and are allowed in subsequent years when the partner again has a positive basis in his or her partnership interest.

Question 4

Rowan and Sanjay are equal partners in a partnership,which uses the calendar year as its tax year.On September 1,this year,Hailley contributed $60,000 cash for a one-third interest in the partnership.The partnership reports $72,000 of ordinary income for the tax year ending on December 31 of this year.The income allocation to Hailley is (assume the elective proration method with a monthly convention)

Accepted Answer

D)
Partner Loss Allocation
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Question 5

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

Accepted Answer

D) $15,000 - $25,000 = $10,000 loss × 30% = $3,000 partnership loss and $25,000 (guaranteed payments) of ordinary income.

Question 6

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 2016.Joey's adjusted basis in his partnership interest on January 1,2016,was $5,000.In 2017,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 2016 and 2017 individual income tax returns?

Accepted Answer

A) 2016-Joey's share of the loss is $6,000, but due to the basis limitations, he can only recognize $5,000; the remaining $1,000 carries forward to 2017. 2017-Joey's share of the income is $5,000 which can be netted with the $1,000 loss carryforward, resulting in $4,000 of income recognized.

Question 7

Joy is a material participant in a partnership.Her basis in her partnership interest is $250,000.Due to a major expansion,the partnership will generate a significant loss this year,and Joy's share is expected to be $300,000.The partners expect the partnership to report a large profit next year.Joy is in the top tax bracket this year,and she expects to be in a lower tax bracket next year.Due to her higher marginal tax rate this year,Joy would like to deduct her full share of the partnership loss this year.What strategies can she employ before year-end to assure full deduction of this year's loss?

Accepted Answer

D) Joy's deduction of the loss will be limited to her basis. She will need to increase her basis before year-end in order to deduct the full loss. She can raise her partnership basis by either making a loan to the partnership or contributing capital to the partnership.

Question 8

All of the following statements are true regarding nonliquidating distributions of a partnership except

Accepted Answer

B) While generally neither the partner nor the partnership recognizes gain or loss from a nonliquidating distribution, the partner recognizes gain to the extent of the excess of the money received over the partner's basis in the partnership interest.

Question 9

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?

Accepted Answer

C) A loss can be claimed to the extent of the partner's basis. Original basis of $60,000 plus $80,000 (50% of increase in debt of $160,000) = $140,000. The remaining loss may be carried over.

Question 10

Sandy and Larry each have a 50% interest in SL Partnership.The partnership and the individuals file on a calendar-year basis.In 2016,SL Partnership had a $30,000 ordinary loss.Sandy's adjusted basis in her partnership interest on January 1,2016,was $12,000.In 2017,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 2016 and 2017 individual income tax returns?

Accepted Answer

A) 2016-Sandy's share of the loss is $15,000, but due to the basis limitations, she can only recognize $12,000; the remaining $3,000 carries forward to 2017. 2017-Sandy's share of the income is $10,000 which can be netted with the $3,000 loss carryforward, resulting in $7,000 of income recognized.

Question 11

Which of the following will be separately stated by a partnership reporting its operations for the year to the IRS?

Accepted Answer

A) All investment income must be separately stated.

Question 12

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 is (assume the elective proration method with a monthly convention)

Accepted Answer

C)
Partner Loss Allocation
Edmond 1/2 × $36,000 × 9/12 $ 13,500
1/3 × $36,000 × 3/12 3,000
$ 16,500
Samuel Same allocation as Edmond $ 16,500
Joan 1/3 × $36,000 × 3/12 $ 3,000

Question 13

Atiqa receives a nonliquidating distribution of land from her partnership.The partnership purchased the land five years ago for $20,000.At the time of the distribution,it is worth $28,000.Prior to the distribution,Atiqa's basis in her partnership interest is $37,000.Due to the distribution Atiqa and the partnership will recognize income of

Accepted Answer

C) Generally, neither the partnership nor the partner recognizes gain or loss on nonliquidating distributions.

Question 14

Atiqa receives a nonliquidating distribution of land from her partnership.The partnership purchased the land five years ago for $20,000.At the time of the distribution,it is worth $28,000.Prior to the distribution,Atiqa's basis in her partnership interest is $37,000.Atiqa's basis in the distributed land and her post-distribution basis in her partnership interest are

Accepted Answer

D) No gain is recognized by the partner or the partnership due to the distribution, and the partner will take over the partnership's adjusted basis of $20,000 in the land. Atiqa's partnership basis will be reduced to $17,000 ($37,000 predistribution basis - $20,000 basis in land).

Question 15

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

Accepted Answer

D)
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Question 16

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

Accepted Answer

C) The partnership realizes a gain of $53,000 ($123,000 sales price - $70,000 adjusted basis), but it is allowed to reduce the gain by Jamahl's loss of $20,000 that was disallowed as a related party transaction.

Question 17

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

Accepted Answer

D) Section 1245 and 1250 recapture are included as partnership ordinary income.

Question 18

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

Accepted Answer

D) Of the $120,000 ($210,000 - $90,000) gain, $70,000 ($160,000 - $90,000) of it is attributed to Lois since it existed at the date of her contribution, and the remaining $50,000 ($120,000 - $70,000) gain is allocated equally to Lois $25,000 and Clark $25,000. Thus, $25,000 gain is assigned to Clark; $95,000 ($70,000 + $25,000) is assigned to Lois.

Question 19

Brittany receives a nonliquidating distribution of $48,000 cash from her partnership.Brittany's basis in her partnership interest prior to the distribution is $25,000.What are the tax consequences of the distribution?

Accepted Answer

C) The distribution is considered nontaxable return of capital to extent of the partnership interest. The remainder is capital gain.

Question 20

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

Accepted Answer

C) The nonrecognition rules do not apply to services contributed.

Quiz 17: Partnerships and S Corporations