Question 1

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

The answer of The STU Partnership,an electing Large Partnership,has no...

Question 2

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV.The partnership has claimed $16,000 in depreciation on the machine since its purchase.If the machine is sold for its FMV,would TK Partnership have an unrealized receivable item?

Accepted Answer

The answer of The TK Partnership has two assets: $20,000...

Question 3

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 4

On November 30,Teri received a current distribution of cash of $4,000,marketable securities with a basis of $24,000 and an FMV of $30,000,and inventory with a basis of $2,000 and an FMV of $6,000.Prior to the distribution,Teri's basis in her interest in the partnership was $30,000.(There is no Sec.751 exchange as a result of the distribution.)How much gain (if any)must Teri recognize as a result of the distribution?

Accepted Answer

The answer of On November 30,Teri received a current distribution...

Question 5

Identify which of the following statements is true.

Accepted Answer

Choice C is true. Limited liability companies (LLCs) combine the legal benefits of the corporate form, such as limited liability for the owners, with the tax benefits of the partnership form, which allows the income to pass through to the owners' personal tax returns. Choice A is false because when a partnership is divided into two or more new partnerships, only the resulting partnerships that are newly created are considered new partnerships. Choice B is false because a partnership can be publicly traded if it meets certain criteria, such as registering with the Securities and Exchange Commission (SEC) and meeting reporting requirements, even if its interests are not traded on a securities exchange.

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 in place, the basis adjustment is allocated to the partners' share of the basis in partnership assets. The partnership has a total basis of $1,600,000, so Han's share of the basis will increase by 25% of that, or $400,000. Therefore, Han's basis in his partnership interest will increase by $400,000/25% = $1,600,000, which is choice C.

Question 7

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 long-term capital gains to its partners?

Accepted Answer

The STU Partnership has a net Sec.1231 gain of $60,000, which is treated as long-term capital gain. Since the partnership has no passive activities, the $50,000 net long-term capital losses cannot offset any gains. Therefore, $60,000 will be reported as long-term capital gains to the partners.

Question 8

Adnan had an adjusted basis of $11,000 for his interest in the Adnan and Donnell Partnership on December 31.On this date,Adnan received from the partnership,in complete liquidation of his interest,$10,000 cash and land with a $2,000 basis to the partnership and a $3,000 FMV.What is Adnan's basis for the land distributed to him?

Accepted Answer

The answer of Adnan had an adjusted basis of $11,000...

Question 9

Two years ago,Tom contributed investment land with a basis of $50,000 and FMV of $62,000 to the RST Partnership.This year,Tom has a basis in his partnership interest of $53,000 when he receives a current distribution of $14,000 cash and inventory with a basis of $35,000 and FMV of $52,000.(There is no Sec.751 exchange in connection with the inventory distribution.)The partnership continues to hold the land Tom contributed.How much gain (if any)must Tom recognize as a result of this distribution?

Accepted Answer

The answer of Two years ago,Tom contributed investment land with...

Question 10

Last year,Cara contributed investment land with an FMV of $24,000 and basis of $18,000 to the CDE Partnership.CDE made no distributions during last year,and Cara's basis in her partnership interest on December 31 of last year was $28,000.On January 1 of this year,the partnership distributed cash of $30,000 to Cara and distributed the land contributed by Cara to another partner,David.On the distribution date,the land had a $27,000 FMV.Assume the CDE Partnership reported no profit or loss this year.How much gain (if any)must Cara recognize as a result of the distributions? What is her basis in the partnership after the distributions?

Accepted Answer

The answer of Last year,Cara contributed investment land with an...

Question 11

Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money,accounts receivable having a zero basis to the partnership,and land having a $28,000 basis to the partnership.What is Jerry's basis in his partnership interest after the distribution?

Accepted Answer

The answer of Jerry has a $50,000 basis for his...

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

Because the partnership has a 754 election in effect, Patrick's purchase of a one-third interest in the partnership will result in a basis adjustment equal to his share of the difference between the partnership's inside basis (the partnership's basis in its assets for tax purposes) and the outside basis (Patrick's basis in his partnership interest). Since Patrick's share of the partnership's assets is one-third of $1,500,000, or $500,000, and his purchase price was $600,000, his initial outside basis is $600,000. The inside basis is not provided, but we know that the partnership has assets with a value of $1,500,000, so it seems reasonable to assume that the inside basis is also $1,500,000. Therefore, Patrick's initial outside basis of $600,000 is less than his share of the inside basis ($500,000), resulting in a basis adjustment of $100,000, which increases Patrick's share of the basis in the partnership assets.

Question 13

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 14

The Tandy Partnership owns the following assets on December 31:
  Is the partnership's inventory considered to be substantially appreciated for purposes of Sec.751? Show your work.

Accepted Answer

The answer of The Tandy Partnership owns the following assets...

Question 15

When must a partnership make mandatory basis adjustments?

Accepted Answer

Mandatory basis adjustments are required when the partnership sells an interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more.

Question 16

Which of the following statements is correct?

Accepted Answer

The Sec.754 election applies to both sales and distributions. It allows a partnership to adjust the basis of its assets when there is a transfer of an interest in the partnership. This election can be beneficial for both the partnership and the transferee.

Question 17

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

The answer of Patrick purchased a one-third interest in the...

Question 18

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

Accepted Answer

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

Question 19

The CHS Partnership's balance sheet presented below is prepared on a cash basis at September 30 of the current year.
   Cindy withdraws from the partnership under an agreement whereby she takes one-third of each of the three assets and assumes $10,000 of the notes payable.Her basis for the partnership interest before any distribution is $25,000.What gain/loss should she report for tax purposes?

Accepted Answer

The answer of The CHS Partnership's balance sheet presented below...

Question 20

Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money,accounts receivable having a zero basis to the partnership,and land having a $28,000 basis to the partnership.What will Jerry's basis be in these assets?

Accepted Answer