R3 M6 - Partnership

Question 1

What is ordinary business income?

Answer 1

• Sales Revenue
• Cost of goods Sold
• Wages (Salaries to employees)
• Guaranteed Payments
• Depreciation
  -MACRS Depreciation -
• Bonus

Question 2

What are separately stated items?

Answer 2

Items that are:

• Subject to different tax rates looking at it from an individual level.
• Reported on different forms like Sch A (Itemized Deduction)
• Guaranteed payments, interest/ Dividend income (Sch B.)

Dividend Income
Capital gain
Charitable contributions
Section 179 expense

Question 3

How do you calculate ordinary business income in this problem?

Answer 3

How do you calculate MACRS depreciation would be zero because it an ordinary business expense which was used to calculate the ordinary business income.

Question 4

A reduction of a partner’s share of partnership liabilities will have what effect on the partner’s basis in the partnership?

A.	A reduction of the partner's basis, provided the reduction does not take the basis below zero.
B.	An increase in the partner's basis by the amount of the partner's share of liability reduction.
C.	There is no effect on partnership basis.
D.	A reduction of the partner's basis by the amount of the partner's share of liability reduction.

Answer 4

Choice “D” is correct. When a partner’s share of partnership liabilities decreases, a partner’s basis in the partnership decreases by his/her share of the decrease.

Choice “A” is incorrect. When a partner’s share of partnership liabilities decreases, a partner’s basis in the partnership decreases by his/her share of the decrease. If the reduction caused the partner’s basis to drop below zero, the partner would recognize taxable income to bring his/her basis to zero.

Choice “B” is incorrect. When a partner’s share of partnership liabilities decreases, a partner’s basis in the partnership decreases, not increases, by his/her share of the decrease.

Choice “C” is incorrect. There is an effect on partnership basis from a reduction in partnership liabilities. When a partner’s share of partnership liabilities decreases, a partner’s basis in the partnership decreases by his/her share of the decrease.

Question 5

Answer 5

Question 6

Shontelle and Teodoro are equal partners in the S&T Partnership. On January 1 of the current year, each partner’s adjusted basis in S&T was $50,000 (including each partner’s $15,000 share of partnership liabilities). During the current year, S&T sustained an operating loss of $25,000 and earned $5,000 of interest and dividend income from investments. The partnership’s liabilities were reduced to $20,000 as of December 31. Assuming the liabilities are shared equally by the partners, the basis of each partner’s interest in S&T on January 1 of the next year is:

A.	$35,000

B.	$40,000

C.	$45,000

D.	$47,500

Answer 6