Question 1

Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $20,000 ordinary business loss allocation. His tax basis in ABC at the beginning of ABC's most recent tax year was $10,000. Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year, Clint noted that his share of ABC partnership debt changed as follows: recourse debt increased from $0 to $2,000, qualified nonrecourse debt increased from $0 to $3,000, and nonrecourse debt increased from $0 to $3,000. Finally, the Schedule K-1 Clint recently received from ABC reflected a $1,000 cash contribution he made to ABC during the year.Clint is not a material participant in ABC Partnership, and he received $10,000 of passive income from another investment during the same year he received the loss allocation from ABC. How much of the $20,000 loss from ABC can Clint deduct currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

Accepted Answer

The answer of Clint noticed that the Schedule K-1 he...

Question 2

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses.

Accepted Answer

The answer of Explain why partners must increase their tax...

Question 3

Fred has a 45 percent profits interest and 30percent capital interest in the SAP Partnership, and his tax basis before considering his share of SAP's current-year loss is $13,000. Included in his tax basis is a $4,600 share of recourse debt and a $7,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $17,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

Accepted Answer

The answer of Fred has a 45 percent profits interest...

Question 4

On January 1, 20X9, Mr. Blue and Mr. Grey each contributed $100,000 to form the B&G General Partnership. Their partnership agreement states that they will each receive a 50 percent profits and loss interest. The partnership agreement also provides that Mr. Blue will receive an annual $36,000 guaranteed payment. B&G began business on January 1, 20X9. For its first taxable year, its accounting records contained the following information:
  The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30, 20X9. B&G repaid $10,000 of the loan on December 15, 20X9. Neither of the partners received a cash distribution from B&G in 20X9.
Complete the following table related to Mr. Blue's interest in B&G partnership:

Accepted Answer

The answer of On January 1, 20X9, Mr. Blue and...

Question 5

Peter, Matt, Priscilla, and Mary began the year in the PMPM General Partnership sharing profits, losses, and capital equally. They had a tax basis at the beginning of the year of $3,000, $10,000, $8,000, and $11,000, respectively. Early in the year, Mary provided general consulting services to the partnership and received an additional 15 percent profits, losses, and capital interest in the partnership. The liquidation value of her additional interest was $45,000. Later the same year, the partnership received cash contributions of $25,000 from Peter and Matt that it used to repay the partnership's $35,000 recourse debt. According to state law, the partners shared responsibility for this debt in accordance with their loss-sharing ratios. What is each partner's tax basis after adjustment for these transactions?

Accepted Answer

The answer of Peter, Matt, Priscilla, and Mary began the...

Question 6

Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $19,600 ordinary business loss allocation. His tax basis in ABC at the beginning of ABC's most recent tax year was $9,600. Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year, Clint noted that his share of ABC partnership debt changed as follows: recourse debt increased from $0 to $1,600, qualified nonrecourse debt increased from $0 to $2,600, and nonrecourse debt increased from $0 to $2,600. Finally, the Schedule K-1 Clint recently received from ABC reflected a $600 cash contribution he made to ABC during the year.
Clint is not a material participant in ABC Partnership, and he received $9,600 of passive income from another investment during the same year he received the loss allocation from ABC. How much of the $19,600 loss from ABC can Clint deduct currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

Accepted Answer

The answer of Clint noticed that the Schedule K-1 he...

Question 7

On January 1, 20X9, Mr. Blue and Mr. Grey each contributed $100,000 to form the B&G General Partnership. Their partnership agreement states that they will each receive a 50percent profits and loss interest. The partnership agreement also provides that Mr. Blue will receive an annual $36,000 guaranteed payment. B&G began business on January 1, 20X9. For its first taxable year, its accounting records contained the following information:
  The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30, 20X9. B&G repaid $10,000 of the loan on December 15, 20X9. Neither of the partners received a cash distribution from B&G in 20X9.Complete the following table related to Mr. Blue's interest in B&G partnership:

Accepted Answer

The answer of On January 1, 20X9, Mr. Blue and...

Question 8

Fred has a 45percent profits interest and 30percent capital interest in the SAP Partnership, and his tax basis before considering his share of SAP's current-year loss is $11,000. Included in his tax basis is a $2,600 share of recourse debt and a $5,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $15,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

Accepted Answer

The answer of Fred has a 45percent profits interest and...

Question 9

Alfred, a one-third profits and capital partner in Pizzeria Partnership, needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership. Unfortunately, the Schedule K-1 he recently received was for Year 3 of the partnership, but Alfred only knows that his tax basis at the beginning of Year 2 of the partnership was $23,140. Thankfully, Alfred still has his Schedule K-1 from the partnership for Years 1 and 2.
Using the following information from Alfred's Year 1, Year 2, and Year 3 Schedule K-1, calculate his tax basis the end of Year 2 and Year 3.

Accepted Answer

The answer of Alfred, a one-third profits and capital partner...

Question 10

What is the difference between a partner's tax basis and at-risk amount?

Accepted Answer

The answer of What is the difference between a partner's...

Question 11

Bob is a general partner in Fresh Foods Partnership and is trying to determine if the income reported on his K-1 should be classified as passive or active trade or business income. List three different criteria that, if met, would allow Bob to treat the income from Fresh Foods as active trade or business income.

Accepted Answer

The answer of Bob is a general partner in Fresh...

Quiz 9: Forming and Operating Partnerships

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses.

What is the difference between a partner's tax basis and at-risk amount?