REG 41 - Partnership Taxation 1 - Formation Flashcards
Kerr and Marcus form KM Partnership with a cash contribution of $80,000 from Kerr and a property contribution of land from Marcus. The land has a fair market value of $80,000 and an adjusted basis of $50,000 at the date of the contribution. Kerr and Marcus are equal partners.
What is Marcus's basis immediately after formation? A. $0B. B. $50,000 C. $65,000 D. $80,000
B. Marcus’s basis in his partnership interest is equal to the basis of the property contributed, or $50,000.
Pert contributed land with a fair market value of $20,000 to a new partnership in exchange for a 50% partnership interest. The land had an adjusted basis to Pert of $12,000 and was subject to a $4,000 mortgage, which the partnership assumed. What is the adjusted basis of Pert's partnership interest? A. $10,000 B. $12,000 C. $18,000 D. $20,000
A. A partner’s initial basis in a partnership is equal to the amount of cash that the partner contributed plus the partner’s adjusted basis for property when contributed. If the partnership assumes indebtedness from the contributed property, the contributing partner’s basis is reduced by the amount of indebtedness assumed by the other partners.
Pert contributed land with an adjusted basis of $12,000. However, the land was subject to a mortgage of $4,000, which was assumed by the partnership.
Since Pert has a 50 percent interest, the other partners assumed $2,000 of the mortgage. Thus, Pert’s adjusted basis in the partnership interest is $10,000, the $12,000 adjusted basis of the land contributed less the $2,000 of the mortgage assumed by the other partners.
The method used to depreciate partnership property is an election made by
A. The partnership and must be the same method used by the “principal partner.”
B. The partnership and may be any method approved by the IRS.
C. The “principal partner.”
D. Each individual partner.
B. The partnership elects the method used to depreciate partnership property with the results passed through to the partners. This method may be any type approved by the IRS.
If any of the partners do not use the same treatment as the partnership and do not notify the IRS of the different treatment, the IRS may adjust the partner’s return to conform to the return of the partnership with the additional tax being assessed.
The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date
A. The partner is admitted to the partnership.
B. The partner transfers the asset to the partnership.
C. The partner’s holding period of the capital asset began.
D. The partner is first credited with the proportionate share of partnership capital.
C. The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner’s holding period of the capital asset began.
When a partner’s share of partnership liabilities increases, that partner’s basis in the partnership
A. Increases by the partner’s share of the increase.
B. Decreases by the partner’s share of the increase.
C. Decreases, but not to less than zero.
D. Is not affected.
A. When a partner’s share of a partnership’s liabilities increases, the increase is treated as a contribution to the partnership.
As a result of such a contribution, the partner’s basis in the partnership would increase by a corresponding amount.
On June 1, 2014, Kelly received a 10% interest in Rock Co., a partnership, for services contributed to the partnership. Rock’s net assets at that date had a basis of $70,000 and a fair market value of $100,000.
In Kelly's 2014 income tax return, what amount must Kelly include as income from transfer of partnership interest? A. $7,000 ordinary income. B. $7,000 capital gain. C. $10,000 ordinary income. D. $10,000 capital gain.
C. When an individual contributes services to a partnership for a capital interest in the partnership, the individual reports taxable income equal to the fair market value of the transferred capital interest.
Capital interests received are treated as guaranteed payments, which means the capital interest is viewed a salary payment and, as such, reported as ordinary income by the partner.
Since the fair market value of the partnership’s net assets is $100,000 and Kelly contributed services for a 10 percent interest in the partnership, Kelly must recognize $10,000 of ordinary income.
T/F: Partners do not recognize gains or losses on contributions of property (that have no liabilities attached) to a partnership.
True
T/F: “Inside” basis refers to the adjusted basis of a partner’s interest in a partnership.
False.
“Outside” basis refers to the adjusted basis of a partner’s interest in a partnership.
T/F: A partnership assumes the adjusted basis of property contributed by a partner to the partnership.
True
