Tax Exam 2

A partnership is allowed to select a tax year different from its required tax year if it can establish to the IRS's satisfaction that a business purpose exists for using the requested tax year.

True

As a general rule, when a person obtains an interest in partnership capital through rendition of services, ordinary income is recognized to the extent of the fair market value of the interest received.

True

Each partner's allocable share of partnership items is deemed to be taxed to the partner on the last day of the entity's tax year, regardless of the amount that has been distributed to the partner during the year.

True

Generally, neither the partner nor the partnership recognize gain or loss on the contribution of property to the partnership in exchange for an interest in the partnership's capital and profits.

True

If a partner who owns a 50 percent interest in a partnership's capital and profits sells his interest to an unrelated party, the partnership's taxable year closes for all partners on the date of the sale.

True

In a general partnership all the partners are classified as "general partners," each of whom has unlimited liability for the debts of the partnership.

True

In the case of recourse debt, if the partnership defaults and the collateral is insufficient to satisfy the debt or if no property is pledged as collateral on the debt, the lender can go after the partnership assets and assets of the general partners to satisfy the debt.

True

The partnership's beginning tax basis in property it receives from a partner in exchange for an interest in partnership capital is the contributing partner's adjusted basis in the property.

True

The tax laws allow partners to include as part of the tax basis in their partnership interests their respective shares of partnership liabilities.

True

When a partner contributes unrealized receivables to a partnership in exchange for an interest in the partnership, the subsequent gain or loss realized by the partnership upon the collection of the receivables is always ordinary income or loss.

True

When a partnership assumes or reduces one of its liabilities or the partners change their relative profit and loss ratios, the adjustment to the partner's basis is affected by treating the change as if there were a transfer of money between the partners and the partnership.

True

When contributed property is transferred subject to a mortgage or other indebtedness or when a partner's indebtedness is assumed by the partnership, the contributing partner's basis in the partnership interest is reduced by the amount of the indebtedness assumed by the other partners.

True

Rachael and Ray form an equal partnership R&R on January 1, 20X1. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $100,000. Ray's adjusted basis in the land is $30,000. Ray is a real estate developer, and at the time of the contribution, the land was inventory in his hands. The land is a capital asset in the hands of R&R. If R&R sells the land in 20X7 for $180,000, a. R&R will recognize $150,000 of capital gain. b. R&R will recognize $150,000 of ordinary income. c. R&R will recognize $80,000 of ordinary income and $70,000 of capital gain. d. R&R will recognize $80,000 of ordinary income. e. R&R will recognize $80,000 of capital gain.

a. R&R will recognize $150,000 of capital gain.

At the beginning of 20X3, Margaret's tax basis in her 30 percent interest in MP partnership is $3,000. During 20X3, Margaret does not make any additional contributions to MP and her share of MP liabilities does not change. During 20X3, MP distributes $5,000 to Margaret and reports the following items of partnership income, deduction, gain and loss. Taxable income $15,000 Tax-exempt interest 6,000 Section 1231 loss (10,000) Margaret's tax basis in MP at the end of 20X3 equals: a. $0. b. $1,300. c. $9,000. d. $2,700.

b. $1,300

Jane Maxwell contributes land to a partnership in 20X5 in which she has a 50 percent interest in profits and losses. The land had been used as a personal hunting preserve and will now be used to store surplus equipment used by the partnership. Jane purchased the land in 20X1 for $500,000 when the value of land was at its peak. At the time of the contribution, the land was appraised at $350,000. What is the amount of taxable income reported by Jane if the land is sold in 20X9 for $600,000? a. $250,000 b. $125,000 c. $100,000 d. $50,000

b. $125,000

On January 1, 2013, Henry, Cabot, and Lodge formed a three-man equal partnership with Henry and Cabot each contributing $100,000 and Lodge contributing securities with a basis to him of $60,000 and a fair market value of $100,000. On September 30 the partnership sold the securities for $130,000. The amount of the gain to be allocated to Lodge is: a. $70,000 b. $50,000 c. $30,000 d. $23,333 e. $10,000

b. $50,000

Rachael and Ray form an equal partnership, R&R, on January 1, 20X1. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land (held by him as a capital asset) worth $100,000. Ray's adjusted basis in the land is $130,000. The land is used as section 1231 property in the hands of R&R. If R&R sells the land in 20X7 for $80,000, a. R&R will recognize a $50,000 capital loss. b. R&R will recognize a $50,000 section 1231 loss. c. R&R will recognize a $20,000 section 1231 loss. d. R&R will recognize a $30,000 capital loss and a $20,000 section 1231 loss. e. R&R will recognize a $20,000 capital loss and a $30,000 section 1231 loss.

b. R&R will recognize a $50,000 section 1231 loss

Phil Justin and Mark Tyme are equal partners in the Justin Tyme partership. On December 15, 2012, Phil Justin transferred land with a fair market value of $100,000 to the Justin Tyme partnership. Phil had a basis in the land of $70,000. On June 1, 2013, Phil withdrew cash of $50,000 from the Justin Tyme partnership. An IRS agent is currently reviewing Phil's 2012 and 2013 income tax returns. a. Phil should not be concerned because the contribution was a nontaxable event under section 721 and the distribution is tax free since he has sufficient basis in the partnership. b. The IRS agent will likely assert that the transaction was a disguised sale and that Phil should have reported $15,000 gain on the sale. c. The IRS agent will be unable to assert the transaction was a disguised sale since the transfer of the land and the distribution of the cash were in different years. d. The IRS agent will be unable to assert the transaction was a disguised sale since these rules do not apply to a partnership and a 50 percent or more partner.

b. The IRS agent will likely assert that the transaction was a disguised sale and that Phil should have reported $15,000 gain on the sale.

When inventory that is contributed to the partnership in exchange for a partnership interest is eventually sold: a. any gain or loss the partnership recognizes is always ordinary income or loss. b. any gain or loss the partnership recognizes is ordinary income or loss if the inventory is sold within five years of when it is contributed. c. any gain or loss the partnership recognizes is determined based on the use of the property by the partnership. d. any gain or loss the partnership recognizes is ordinary income or loss to the extent of the contributing partner's built-in gain or loss in the property at the time of the contribution.

b. any gain or loss the partnership recognizes is ordinary income or loss if the inventory is sold within five years of when it is contributed.

Debra Wallace and Joan Pederson are equal partners in the capital and profits of Wallace & Pederson, but are otherwise unrelated. On August 1, 2013, Wallace sold 100 shares of Kiandra Mining Corporation stock to the partnership for its fair market value of $7,000. Wallace had bought the stock in 1998 at a cost of $10,000. What is Wallace's recognized loss in 2013 on the sale of this stock? a. $0 b. $1,500 long-term capital loss c. $3,000 long-term capital loss d. $3,000 ordinary loss

c. $3,000 long-term capital loss

For the year ended December 31, 2013, the partnership of Charles and Paul had book income of $75,000, which included the following: (a) Short-term capital loss, $3,100; (b) Long-term capital gain (on sale of securities), $4,300; (c) Section 1231 gain, $1,500; (d) Ordinary income (Section 1245 recapture), $600; and (e) Domestic dividends, $1,000. The partners share profits and losses equally. What is each partner's share of partnership taxable income (excluding all partnership items which must be accounted for separately) to be reported as taxable for 2013? a. $35,700 b. $36,050 c. $35,650 d. $37,500 e. None of the above

c. $35,650

Malcolm Smith, a dealer in securities, is a 60 percent owner of the Real Partnership which on July 1, 2013, sold to him Acme Securities which it had held as an investment for three years. The basis of the securities to Real was $40,000; the sales price to Malcolm was $100,000. On his 2013 tax return, Malcolm should report income of the character and amount of: a. $36,000 long-term capital gain b. $36,000 short-term capital gain c. $36,000 ordinary income d. $18,000 long-term capital gain e. $18,100 ordinary income

c. $36,000 ordinary income

The partnership of Bond and Felton has been permitted to retain its fiscal year ending March 31. John Bond files his tax return on a calendar year basis. The partnership paid Bond a guaranteed salary of $1,000 per month during the calendar year 2012 and $1,500 per month during the calendar year 2013. After deducting this salary the partnership realized ordinary income of $80,000 for the year ended March 31, 2013, and $90,000 for the year ended March 31, 2014. Bond's share of the profits is the salary paid to him plus 40 percent of the ordinary income after deducting his salary. For 2013, what amount should Bond report as his taxable income from the partnership? a. $36,500 b. $44,000 c. $45,500 d. $50,000

c. $45,500

32. When a partner contributes encumbered property and the indebtedness is assumed by the partnership: a. the contributing partner's basis in the partnership interest is reduced by the amount of the net amount of indebtedness assumed by the other partners. b. the noncontributing partners' bases in their partnership interests increase by their respective amounts of partnership debt for which they are responsible. c. Both a and b. d. None of the above.

c. Both a and b

Rachael and Ray form an equal partnership R&R on January 1, 20X1. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $170,000, which is subject to a $70,000 debt, which R&R assumes. Ray's adjusted basis in the land is $30,000. Which of the following statements is accurate with respect to this exchange? a. Ray does not recognize any gain or loss on the exchange and his tax basis in R&R is $30,000. b. Ray does not recognize gain on the exchange and his tax basis in R&R is $100,000. c. Ray recognizes $5,000 gain on the exchange and his tax basis in R&R is $0. d. Ray recognizes $70,000 gain on the exchange and his tax basis in R&R is $100,000.

c. Ray recognizes $5,000 gain on the exchange and his tax basis in R&R is $0.

Richard Wilson owns a 20 percent interest in PCW partnership. At the beginning of 20X3, Richard's basis in his partnership interest is $5,000. During 20X3, the PCW reports a $20,000 taxable income from its operations and also reports that it received $10,000 in tax-exempt interest income. PCW distributes $7,500 to Richard during 20X3. Which of the following statements is correct regarding the 20X3 tax year? a. Richard will include in his taxable income his distributive share of $6,000 from the total partnership income for 20X3. b. Richard will decrease the basis in his partnership interest by his distributive share of $2,000 from the partnerships tax-exempt interest. c. Richard's basis in his partnership interest is $11,000 prior to taking into account the $7,500 distribution. d. Richard will report as income the $1,500 excess distribution above his distributive share of the total partnership income for 20X3.

c. Richard's basis in his partnership interest is $11,000 prior to taking into account the $7,500 distribution.

Robert Romaine and Frank Fryer are partners in the Quickie Freeze partnership, owning respectively 60 percent and 40 percent of the partnership's capital and profits. At the beginning of the year, their bases in their partnership interests were $18,000 and $12,000. During the year, the partnership had the following items of income: partnership ordinary income, $30,000; long- term capital gains, $10,000; and tax-exempt income from municipal bond interest, $5,000. Robert withdrew $8,000 and Frank withdrew $12,000. Their respective bases at the end of the year are: a. Robert: $45,000; Frank: $30,000 b. Robert: $42,000; Frank: $28,000 c. Robert: $37,000; Frank: $18,000 d. Robert: $34,000; Frank: $16,000 e. Robert: $33,000; Frank: $22,000

c. Robert: $37,000; Frank: $18,000

A partner's contribution of property to the partnership in exchange for a capital interest in the partnership: a. results in a recognized gain or loss by the partnership at the time of contribution. b. results in a recognized gain or loss by the contributing partner at the time of contribution. c. represents the partner's ownership rights in the partnership upon his withdrawal from the partnership or upon liquidation of the partnership. d. All of the above.

c. represents the partner's ownership rights in the partnership upon his withdrawal from the partnership or upon liquidation of the partnership.

Edward Engels owns a 70 percent interest in the capital and profits of the partnership of Edward and Moore. During 2013, Edward purchased a piece of surplus machinery from the partnership for $5,000. On the date of the sale the machinery had an adjusted basis to the partnership of $8,000. For the year ended December 31, 2013, the partnership's net income was $50,000 after recording the loss on the sale of the machinery. Assuming that there were no other partnership items to be specially reported, what was Edward's distributive share of the partnership's taxable income for 2013? a. $35,000 b. $35,630 c. $36,470 d. $37,100

d. $37,100

Dan and Eva form equal DE partnership on January 1, 20X1. Dan, Eva, and DE all use the calendar year. In exchange for their respective interests in DE, Dan contributes $50,000 cash and Eva contributes land (held as a capital asset) worth $50,000. Eva's basis in the land at the time of the exchange is $15,000. During 20X1, DE reports taxable income of $10,000, and during 20X1, DE distributes $25,000 to each partner. At the end of 20X1, DE's recourse liabilities total $20,000. DE has no nonrecourse liabilities at the end of 20X1. At the end of 20X1 Dan and Eva's tax basis in their respective interest in DE are: a. $35,000 and ($5,000), respectively. b. $35,000 and $0, respectively. c. $35,000 and $5,000, respectively. d. $40,000 and $5,000, respectively. e. $40,000 and $0, respectively.

d. $40,000 and $5,000, respectively.

Which of the following do not increase a partner's basis in the partnership interest? a. additional contributions the partner makes during the year. b. the partner's share of tax-exempt income. c. the partner's distributive share of partnership items of income and gain. d. All of the above increase a partner's basis in the partnership interest.

d. All of the above increase a partner's basis in the partnership interest.

In March 2013, Davis Durham entered a partnership by contributing to the partnership $10,000 cash and machinery which had an adjusted basis to him of $6,000 and a fair market value of $9,000. Davis acquired the machinery in 2007 at a cost of $12,000. His capital account was credited for $20,000 which constituted one-fourth of total partnership capital, and goodwill was recorded for the difference. What are the tax effects to Davis upon this transfer to the partnership? a. Long-term capital gain of $3,000 b. Ordinary income of $3,000 c. Long-term capital gain of $3,000; ordinary income of $1,000 d. None of the above

d. None of the above

A and B form an equal partnership. A uses a calendar year end; B uses a May 31 year end. Which of the following statements is accurate regarding the partnership's required tax year? a. The partnership must adopt the calendar year end of its majority partner. b. The partnership must adopt the May 31 year end of its majority partner. c. The partnership does not have a majority partner and therefore can adopt either a May 31 or calendar year end. d. The partnership does not have a majority partner and therefore its required tax year is either May 31 or December 31, whichever produces the least aggregate deferral of income.

d. The partnership does not have a majority partner and therefore its required tax year is either May 31 or December 31, whichever produces the least aggregate deferral of income.

Martin, Cynthia, and Libbey, the partners of Martin, Cynthia, Libbey, and Company, share profits and losses in a ratio of 4:3:1, respectively. The tax basis of each partner as of December 31, 2013, was as follows: Martin, $7,200; Cynthia, $6,000; and Libbey, $2,500. During 2013, the partnership incurred an operating loss of $15,000. The loss is not reflected in the tax basis figures above. As a result of this loss, what amount should Martin, Cynthia, and Libbey deduct, respectively, on their individual tax returns for 2013? a. $6,000, $4,500, and $2,500 b. $6,000, $4,500, and $4,500 c. $7,000, $5,500, and $2,500 d. $7,100, $5,400, and $2,500 e. $7,200, $5,625, and $1,875

e. $7,200, $5,625, and $1,875

Which of the following do not decrease a partner's basis in the partnership interest? a. A decrease in the partner's share of partnership liabilities. b. A distribution made by the partnership to the partner. c. The partner's distributive share of nondeductible items that are not capital in nature. d. The partner's distributive share of partnership losses. e. All of the above decrease a partner's basis in the partnership interest.

e. All of the above decrease a partner's basis in the partnership interest.

Bill Burns and Bob Smarts were two equal partners in B&B, a calendar year partnership. On January 1, 2013, when the total value of the partnership was $120,000, Bill and Bob admitted Charles Chubbs as an equal partner by crediting his capital account with $40,000 in payment of services which Charles had rendered the B&B partnership. The partnership's ordinary net income for 2013 was $60,000. As of December 31, Charles's basis in his partnership interest and his 2013 reportable income from the partnership are: a. Basis: $0; income: $20,000 b. Basis: $20,000; income: $20,000 c. Basis: $60,000; income: $20,000 d. Basis: $60,000; income: $40,000 e. Basis: $60,000; income: $60,000

e. Basis: $60,000; income: $60,000

Unlike corporations, when one partnership merges into another, the taxable year of each is automatically ended and a new year must be adopted for the continuing entity.

False

When a corporation has been dissolved under local law because of failure to file its annual franchise tax returns but continues to operate in its former fashion, it is always treated as a partnership under both state law and the Internal Revenue Code.

False

When a partner contributes a capital asset to a partnership in exchange for an interest in the partnership, the entire subsequent gain or loss realized by the partnership upon the sale of the capital asset is capital gain or loss if the property is sold within five years of when it is contributed.

False

When a partner contributes inventory to a partnership in exchange for an interest in the partnership, the subsequent gain or loss realized by the partnership upon the sale of the inventory is ordinary income or loss, no matter how long it is held or how it is used by the partnership.

False

When contributed property is sold by the partnership, the recognized gain or loss is allocated among the partners in accordance with the terms in the partnership agreement.

False

Whenever a partnership is dissolved under state law, the tax year ends for all partners and they must report on their respective returns the income of the short year caused by the dissolution, ending within their tax years.

False

Where a partnership incurs a net loss from operations and the loss is one that a particular partner cannot currently claim because the basis of their partnership interest is reduced to zero, that partner must restore the basis within the 20- year NOL carryforward period in order to deduct the remainder of their share of the loss.

False

The co-ownership of business property, where minimal services are provided by the owners for their tenants, constitutes a partnership for federal income tax purposes.

False

The partner's tax basis tracks what each partner is entitled to receive upon dissolution of the partnership.

False

The partners include the amounts reported on their respective Schedule K-1s on their income tax returns for the year that includes the last day of the partnership's tax year, but only to the extent that the income was distributed (in cash or property) to them during the year.

False

The principal partners rule requires that the partnership adopt the tax used by the majority of its principal partners.

False

A joint venture entered into with equal contributions by a corporation (whose sole stockholder is incompetent), a trust for a minor child, the estate of a deceased person, and another partnership cannot qualify as a "partnership" under the Internal Revenue Code.

False

A proper measure of the basis of a partner's interest in a partnership, particularly a trading partnership, can be obtained by reference to the partner's capital account balance.

False

All partners dealing at arm's-length with their partnership are treated as if they were dealing with a stranger and must currently reflect their gains or losses in any transactions with the partnership.

False

Goodwill is not property and therefore cannot be transferred to a partnership without the recognition of income.

False

On July 1, 2013, Bertram Bryant acquired a 30 percent interest in Windward Company, a partnership, by contributing property with an adjusted basis of $5,000 and a fair market value of $12,000. The property was subject to a mortgage of $8,000, which was assumed by Windward. What is Bryant's basis of his interest in Windward? a. $0 b. $4,000 c. $5,000 d. $6,400

a. $0

The partnership of Spencer and Rey realized an ordinary loss of $42,000 in 2013. Both the partnership and the two partners are on a calendar year basis. The partners share profits and losses equally. On December 31, 2013, Rey had an adjusted basis of $18,000 for his partnership interest before taking the 2013 loss into consideration. On his individual return for 2013, what amount and character of loss should he deduct? a. An ordinary loss of $18,000 b. An ordinary loss of $21,000 c. An ordinary loss of $18,000 and a capital loss of $3,000 d. A capital loss of $21,000

a. An ordinary loss of $18,000

The AB general partnership agreement provides for guaranteed payments for services rendered of $50,000 and $80,000 for Andrew and Brenda, respectively. The services rendered are of a nature that the amount is deductible by AB in computing its ordinary income. After the guaranteed payments are deducted, the partnership agreement calls for sharing of profits and losses as follows: Andrew 45 percent; Brenda 55 percent. If AB's ordinary income before taking the guaranteed payments into consideration is $200,000, what amount of total ordinary income from the partnership should each partner report on his or her individual income tax return? a. Andrew $81,500; Brenda $118,500. b. Andrew $69,500; Brenda $130,500. c. Andrew $50,000; Brenda $80,000. d. Andrew $140,000; Brenda $190,000. e. Andrew $119,500; Brenda $210,500.

a. Andrew $81,500; Brenda $118,500.

In 20X1, John and Justin form a partnership and agree to share profits and losses equally. John contributes cash of $100,000 and Justin contributes property (a capital asset) with an FMV of $100,000 and an adjusted basis of $60,000. During 20X3, the partnership sells the property, which is a capital asset in the hands of the partnership, for $150,000. Which of the following statements is correct regarding the 20X3 tax year? a. Justin would be allocated $65,000 of the gain b. Justin would be allocated $50,000 of the gain c. Justin would be allocated $45,000 of the gain d. Justin would be allocated $25,000 of the gain

a. Justin would be allocated $65,000 of the gain

37. Rachael and Ray form an equal partnership R&R on January 1, 20X1. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $100,000. Ray's adjusted basis in the land is $30,000. Which of the following statements is accurate with respect to this exchange? a. Neither Rachael, Ray, nor R&R recognize any gain or loss on the transfer. b. Ray recognizes $70,000 gain on the transfer. c. R&R recognizes $70,000 gain on the transfer. d. b. and c.

a. Neither Rachael, Ray, nor R&R recognize any gain or loss on the transfer

Wayne owns 60 percent and Larry owns 40 percent of the profits and losses of the WL partnership. On January 1, 20X4, the basis in their respective partnership interests is $60,000 and $10,000. During 20X4, WL reports taxable ordinary income of $50,000 and has the following separately stated items: qualified dividend income of $1,000; taxable interest income of $2,600; charitable contributions of $3,000; and Sec. 179 expense of $20,000. During the year, partnership liabilities decreased by $25,000 and there were no distributions made to either partner (assume liabilities are allocated based on profit and loss sharing ratios). On December 31, 20X4, which of the following correctly states the basis in each partner's interest in WL? a. Wayne: $63,360 and Larry: $12,240 b. Wayne: $65,520 and Larry: $12,680 c. Wayne: $90,360 and Larry: $30,240 d. Wayne: $92,160 and Larry: $31,440

a. Wayne: $63,360 and Larry: $12,240

In a general partnership, each partner: a. has unlimited liability for the debts of the partnership. b. must contribute the same amount to the partnership. c. must agree in writing to the terms of the partnership agreement. d. b. and c. e. All of the above.

a. has unlimited liability for the debts of the partnership.

Limited partners are partners that: a. have limited liability for the debts of the partnership. b. have some, but limited, participation in the management of the partnership. c. take part in the partnership for a limited amount of time. d. All of the above.

a. have limited liability for the debts of the partnership.

A partner's tax basis is: a. increased as partnership income and gain is allocated to the partner. b. increased as partnership income and gain is distributed to the partner. c. unaffected as partnership income and gain is allocated to the partner. d. decreased as partnership income and gain is distributed to the partner. e. c. and d.

a. increased as partnership income and gain is allocated to the partner.

The Troika Partnership had an ordinary operating loss of $48,000 for 2013. The partnership had assets of $58,500 and liabilities of $15,000 at the end of the year. Before allocation of the loss or consideration of the liabilities, partner Ashford's one-third capital interest had an adjusted basis of $10,000 at the end of 2013. How much may Ashford deduct on his individual tax return as his share of the partnership loss in 2013? a. $14,500 b. $10,000 c. $16,000 d. $15,000 e. None of the above

d. $15,000

Vernon is a limited partner in the Bow and Arrow Partnership, a nonrealty related business. Vernon's basis at December 31, 2013 for his partnership interest, after considering all items except for the partnership's loss, is $60,000. Vernon's share of the partnership's ordinary passive loss is ($80,000). His at-risk amount under Sec. 465 is $45,000, and he has passive income from other activities of $25,000. How much of the partnership's losses can Vernon deduct on his 2013 tax return? a. $80,000 b. $60,000 c. $45,000 d. $25,000 e. $0

d. $25,000

Jim Cash, one of two partners, contributed business property with a basis to him of $15,000 and a fair market value of $10,000 to the partnership of which he was a member. His capital account was credited with $10,000. The property later was sold for $12,000. As a result of this sale, what gain/loss must Jim report on his personal income tax return? a. $1,000 gain b. $1,500 loss c. $2,000 gain d. $3,000 loss e. None of the above

d. $3,000 loss

On January 1, 2013, John Pierce acquired a 10 percent interest in the Saratoga and Company partnership for a cash investment of $20,000. In 2013, the partnership reported an ordinary loss of $40,000, of which Pierce's distributive share was $4,000. On January 1, 2013, the partnership had no liabilities; however, during 2013 the partnership received the following loans: (a) a $50,000 loan from the Second National Bank, due June 30, 2014, and (b) a $100,000 nonrecourse loan (secured by inventory) from the Union Finance Company, due December 31, 2014. After allocation of the operating loss, what should be the tax basis of Pierce's partnership interest on December 31, 2013? a. $16,000 b. $20,000 c. $21,000 d. $31,000

d. $31,000