Partnerships Flashcards
In the current year, when Hoben’s tax basis in Lynz Partnership interest was $10,000, Hoben received a liquidating distribution as follows;
Marketable securities adj tax basis = $5,000 FMV = $5,000
Land adj tax basis= $25,000 FMV = $27,000
Lynz had no appreciated inventory, unrealized receivables or properties that had been contributed by its partners. What is Hoben’s recognized gain on the distribution?
$0
The only way a capital gain is recognized in a proportionate liquidating distribution from a partnership is if the cash rec’d by the partner is > the partner’s adj basis in his partnership interest. No cash was rec’d and no gain is recognized.
After the adj basis of a partner’s interest has been reduced by cash, then the basis is reduced by any unrealized receivables and inventory which were none in this case.
Finally, the partner’s adj basis is allocated to all other property received based on the relative FMV.
Jay Bird is a partner in Soundview Partnership. The adj basis of his interest is $19,000 of which $15,000 represents his share of partnership liabilities. Jay’s share of the partnership’s unrealized receivables is $6,000. The partnership has no substantially appreciated inventory items. Jay sold his partnership interest for $28,000 cash plus $15,000 of his liability relief. What is the amount and character of his gain?
$6,000 ordinary income; $18,000 capital gain.
The total gain on the sale is $24,000 ($28,000 cash + $15,000 relief of liab). Unrealized receivable of 4$6,000 are treated as ordinary income - the remaining $18,000 is capital gain
Evan, a 25% partner in Vista Partnership, rec’d a $20,000 guaranteed payment in 2013 for deductible services rendered to the partnership. Guaranteed payments were not made to any other partner. Vista’s 2013 partnership income consisted of:
Net income before guaranteed pmt $80,000
Net LTCG $10,000.
What amount of income should Evan report from Vista Partnership on her 2013 tax return?
$37,500 Net income $80,000 Less guarantee pmt -$20,000 Partnership net business income $60,000 X .25 $15,000 \+ 20,000 guaranteed pmt \+ 2,500 25% of LTCG = $37,500
Partnership Abel, Benz, Clark & Day is in the real estate and insurance business. Abel owns a 40% interest in the capital and profits, while Benz, Clark and Day each own 20%. All use the a calendar year. At Nov 1, the real estate and insurance business is separated and 2 partnerships are formed: Partnership Abel & Benz takes over the RE business, Partnership Clark & Day takes over the insurance business. What is the affect of the split?
Partnership Abel & Benz is considered to be a continuation of Partnership Abel, Benz, Clark & Day.
A partnership is considered terminated if there has been a sale or exchange of 50% or more of the total interest in partnership capital and profits.
Together, Able & Benz own 60% so the original partnership will continue with them.
Stone’s basis in Ace Partnership was $70,000 at the time he rec’d a nonliquidating distribution of partnership capital assets. These assets had an adj basis of $65,000 to Ace and FMV of $83,00. Ace had no unrealized receivables, appreciated inventory, or properties which had been contributed by its partners. What was Stone’s recognized gain or loss on the distribution?
$0 Beginning basis $70,000 Adj basis of assets -$65,000 Remaining basis $5,000 There is no gain or loss. General Rule: basis of property rec'd in a distribution, other than in liquidation of a partner's interest, will ordinarily be the same as the basis in the hands of the partnership immediately prior to distribution.
Curry’s adj basis in Vantage Partnership was $5,000 at the time he rec’d a nonliquidating distribution of land. The land had an adj basis of $6,000 and a FMV of $9,000 to Vantage. What was the amount of Curry’s basis in the land?
$5,000
Any time a partner receives a noncash, non-liquidating distrib, there is not gain or loss recognized by the partnership or partner. The basis Curry has in the partnership interest is assigned to the land up to his total basis.
Thompson’s basis in Starlight Partnership was $60,000 at the beginning of the year. Thompson materially participates in the partnership’s business. Thompson rec’d $20,000 cash distrib during the year. Thompson’s share of Starlight’s current operations was a $65,000 ordinary loss and a $15,000 net LTCG. What is the amount of Thompson’s deductible loss for the period?
$55,000 Beg basis $60,000 distrib -$20,000 Adj basis $40,000 LTCG +15,000 Basis for loss $55,000
Turner, Reed and Sumner are equal partners in TRS Partnership. Turner contributed land with adj basis of $20,000 and FMV of $50,000. Reed contributed equip with an adj basis of $40,000 and FMV of $50,000. Sumner provided services worth $50,000. What amount of income is recognized as a result of the transfers?
$50,000
The general rule is that when a partner contributes “property” to a partnership, no gain or loss is recognized. The exception to the general rule is that when a partner contributes “services” to a partnership. The partner will recognize ordinary compensation inome of the FMV of the services rendered.
What is a partnership?
An association of 2 or more persons to carry on a business for PROFIT
What are the 6 characteristics of Partnerships?
- limited duration
- transfer of ownership requires permission from other partners
- May sue or be sued as separate legal entity
- unlimited liability of partners for partnership debts
- ease of formation, can be very informal
- does not pay taxes at partnership level, pass thru to partners
Who may become a partner in a partnership?
Corporations, Minors (but contract of partnership is voidable), and other partnerships
A silent partner in a general partnership
- helps manage the partnership without letting those outside the partnership know this
- retains unlimited liability for the debts of the partnership
- both are correct
- none are correct
- retains unlimited liability for the debts of the partnership
What is watered stock?
when stock is acquired by exchanging cash or property worth less that the par or stated value of the stock.
