R4: Partnership Taxation

Question 1

In the formation of a partnership, the general rule is that no ____ or _____ is recognized on a contribution of property to a partnership in return for partnership interest.

Answer 1

• Gain

- Loss

Question 2

A t/p contributes land in exchange for partnership interest. The land has an adjusted basis of $30k and FMV of $50k at the time of transfer. What gain does the taxpayer recognize on the transfer?

Answer 2

None

Question 3

A taxpayer receives a 20% partnership interest in exchange for services rendered. On the day he is admitted to the partnership, the partnership’s assets have a basis of $20k and a FMV of $80k. How much income will the taxpayer have to recognize?

Answer 3

$16,000

EXPLANATION: 20% of $80,000 = $16,000

Question 4

Can a partner’s capital account in a partnership begin with a negative balance?

Answer 4

NO

Question 5

If the property was previously a capital asset or Section 1231 asset in the hands of the partner, what is the partner’s holding period for his partnership interest?

Answer 5

Use “old” assets holding period

Question 6

If the property is an ordinary income asset (i.e. inventory), what is the partner’s holding period for his partnership interest?

Answer 6

Holding period beings on date property is contributed to the partnership

Question 7

What is the impact of subsequent contributions on a partner’s basis?

Answer 7

Increase

Question 8

What is the impact of subsequent withdrawals on a partner’s basis?

Answer 8

Decrease

Question 9

How do you calculate a partner’s basis?

Answer 9

Basis = capital account + partner’s share of recourse liabilities

Question 10

When is a partnership return due (calendar year)?

Answer 10

April 15

Question 11

Can a partnership terminate if 50% or more of the total partnership interest in both capital and profits is sold or exchanged within any 12-month period?

Answer 11

YES

Question 12

Are syndication costs deductible?

Answer 12

NO

Question 13

If a partner’s loss is in excess of his basis, what will happen to the excess?

Answer 13

Carryforward indefinitely (and remain suspended until basis is reestablished)

Question 14

Are Keough plan contributions a separate item on the 1065?

Answer 14

Yes

Question 15

In general, is a non-liquidating distribution to a partner taxable?

Answer 15

NO

Question 16

What are the three ways a partner may liquidate a partnership interest?

Answer 16

1) complete withdrawal
2) sale of partnership interest
3) retirement or death

Question 17

The adjusted basis of Jody’s partnership interest was $50k before Jody received a current distribution of $20k cash and property with an adjusted basis to the partnership of $40k and a FMV of $35k. What amount of taxable gain must Jody report as a result of this distribution?

Answer 17

$0

Question 18

Marge contributed land with a FMV of $75k and an adjusted basis of $25k to the Grana G Partnership in exchange for a 30% interest. The partnership assumed Bailey’s $10k recourse mortgage on the land. What is Bailey’s basis for his partnership interest?

Answer 18

$18,000

EXPLANATION: A partner’s original basis for a partnership interest acquired by a contribution is the amount of cash plus the adjusted basis of any property contributed less the amount of incoming partner’s liabilities assumed by the other partners.

Question 19

A partnership had four partners. Each partner contributed $100k cash. The partnership reported income for the year of $80k and distributed $10k to each partner. What was each partner’s basis in the partnership at the end of the current year?

Answer 19

$110,000

EXPLANATION: The basis in a partnership is increased by investment, pro-rata share of income, and liabilities for which the partner is personally liable. The basis of a partnership is decreased by distributions, pro rata share of losses, and liabilities for which the partner is personally relieved of.

Question 20

A, B, and C, are equal partners in ABC partnership. A’s basis in the partnership interest is $70k. A receives a liquidating distribution of $10k cash and land with a FMV of $63k and a basis of $58k. What is A’s basis in the land?

Answer 20

$60k

EXPLANATION: In a liquidating distribution, the partner’s basis for the distributed property is the same as the adjusted basis of his partnership interest (as the partner is simply exchanging his partnership interest for the distributed assets) reduced by any monies received in the same transaction.

Question 21

A, B, and C are equal partners in ABC partnership. A’s basis in the partnership interest is $60k. A receives a liquidating distribution of $61k cash and land with a FMV of $14k and adjusted basis of $12k. What gain must A recognize upon the liquidation of his partnership interest?

Answer 21

$1,000

EXPLANATION: With a liquidating distribution, the partner’s basis for the distributed property is the same as the adjusted basis of his partnership interest, first reduced by any monies received. The partner will recognize gain only to the extent that the money received exceeds the partner’s basis in the partnership.

Question 22

Does the individual partner or the partnership make the following election?

Whether to take a deduction or credit for taxes paid to foreign countries

Answer 22

Individual partner

EXPLANATION: Most elections that affect the calculation of taxable income of a partnership are made by the partnership itself rather than by an individual partner. For example, the elections as to the methods of accounting, methods of depreciation, and the Section 179 expensing of a limited amount of depreciable property, the election not to use installment method accounting, and similar elections are made by the partnership and apply to all partners.