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Exam 20: Forming and Operating Partnerships

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Question 31

True/False

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The term "outside basis" refers to the partnership's basis in its assets; whereas, the term "inside basis" refers an individual partner's basis in her partnership interest.

A) True
B) False

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Question 32

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When must a partnership file its return?

A) By the 15th day of the 4th month after the partnership's tax year end
B) By the sixth month after the original due date if an extension is filed
C) By the 15th day of the 3rd month after the partnership's tax year end
D) By the 15th day of the 4th month after the partnership's tax year end and by the sixth month after the original due date if an extension is filed
E) By the sixth month after the original due date if an extension is filed and by the 15th day of the 3rd month after the partnership's tax year end

F) A) and C)
G) A) and E)

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Question 33

Multiple Choice

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Which of the following does not represent a tax election available to either partners or partnerships?

Which of the following statements is true when property is contributed in exchange for a partnership interest?

In what order should the tests to determine a partnership's year end be applied?

TQK, LLC provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc. each hold a 50% capital and profits interest in TQK. If TQK averaged $7,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

A general partner's share of ordinary business income is similar to investment income; thus, a general partner only includes their guaranteed payments as self-employment income.

Styling Shoes, LLC filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax basis at the beginning of the 20X8: (1) Jane, a member with a 25% profits and capital interest and a $5,000 outside basis, (2) Joe, a member with a 45% profits and capital interest and a $10,000 outside basis, and (3) Jack, a member with a 30% profits and capital interest and a $2,000 outside basis. The following items were reported on Styling's Schedule K for the year: ordinary income of $100,000, Section 1231 gain of $15,000, charitable contributions of $25,000, and tax-exempt income of $3,000. In addition, Styling received an additional bank loan of $12,000 during 20X8. What is Jane's tax basis after adjustment for her share of these items?

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately-stated item for the partners that receive the payment?

This year, HPLC, LLC was formed by H Inc., P Inc., L Inc., and C Inc. Each member had an equal share in the LLC's capital. H Inc., P Inc., and L Inc. each had a 30% profits interest in the LLC with C Inc. having a 10% profits interest. The members had the following tax year-ends: H Inc. [1/31], P Inc. [5/31], L Inc. [7/31], and C Inc. [10/31]. What tax year-end must the LLC use?

What type of debt is not included in calculating a partner's at-risk amount?

Jerry, a partner with 30% capital and profit interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry's tax basis in his partnership interest was $50,000. His current year Schedule K-1 reported an ordinary loss of $15,000, long-term capital gain of $3,000, qualifying dividends of $2,000, $500 of non-deductible expenses, a $10,000 cash contribution, and a reduction of $4,000 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?

Bob is a general partner in Fresh Foods Partnership and is trying to determine if the income reported on his K-1 should be classified as passive or active trade or business income. List three different criteria that, if met, would allow Bob to treat the income from Fresh Foods as active trade or business income.

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

A partnership can elect to amortize organization and startup costs; however, syndication costs are not deductible.

Which of the following would not be classified as a material participant in an activity?

A partnership with a C corporation partner must always use the accrual method as its accounting method.

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

In X1, Adam and Jason formed ABC, LLC, a car dealership in Kansas City. In X2, Adam and Jason realized they needed an advertising expert to assist in their business. Thus, the two members offered Cory, a marketing expert, a 1/3 capital interest in their partnership for contributing his expert services. Cory agreed to this arrangement and received his capital interest in X2. If the value of the LLC's capital equals $180,000 when Cory receives his 1/3 capital interest, which of the following tax consequences does not occur in X2?

Gerald received a 33% capital and profit (loss) interest in XYZ Limited Partnership (LP) . In exchange for this interest, Gerald contributed a building with a FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?