Federal Taxes - Partnerships
Jack and Ted formed an equal partnership. Jack contributed $10,000 cash and Ted contributed depreciable equipment that he has owned for 6 months with a fair market value of $10,000 and an adjusted basis of $2,000. Ted had taken $3,000 in depreciation on the equipment before he transferred it to the partnership. What amount should Ted report as a gain as a result of this transaction? a) $0 b) $3,000 c) $4,000 d) $8,000
a) $0
Maggie and Simon each have a 50% interest in a partnership that started business October 1. Maggie uses a calendar year while Simon has a fiscal year ending November 30. Which of the following is correct? a) The partnership may use the fiscal year ending September 30 provided a section 444 election and payment are made. b) The partnership may use the fiscal year ending November 30th as that results in the least deferral. c) The partnership may use the calendar year. d) A & B above are both correct.
d) A & B above are both correct.
The Up and Down Partnership has several revenues and expenses this year. Sales of inventory amounted to $600,000, cost of goods sold and other operating expenses were $410,000, dividend revenue was $8,000, long-term capital gains were $9,000, and charitable contributions amounted to $11,000. For income tax purposes, what is the ordinary business income for this partnership that should be allocated to the various partners? a) $190,000 b) $199,000 c) $198,000 d) $207,000
a) $190,000
The adjusted basis of Rebecca's partnership interest is $17,500. She received a distribution of $9,000 cash and a piece of land with an adjusted basis of $2,500 and a fair market value of $4,000. What is the gain to be recognized at the time of these distributions? a) $1,500 b) $0 c) $4,500 d) $6,000
b) $0
Partners Ray, Fay, & Kay of RFK, a calendar year partnership, share profits and losses in a ratio of 4:3:3, respectively. All three materially participate in the partnership business. Each partner's adjusted basis in the partnership as of December 31 and before any of the year-end income/loss distribution was as follows: Ray $10,000 Fay $8,000 Kay $12,000 The partnership incurred an operating loss of $30,000 for the current year. What are Ray, Fay and Kay's share of the loss to be deducted on their individual income tax returns for the current year? Ray / Fay / Kay a) $6,000 / $4,800 / $3,600 b) $10,000 / $8,000 / $9,000 c) $10,000 / $8,000 / $12,000 d) $12,000 / $9,000 / $9,000
b) $10,000 / $8,000 / $9,000
Bryan had a 50% interest in a partnership and he materially participates in the partnership business. Bryan's adjusted basis in the partnership was $40,000 at the beginning of the year. There were no distributions to Bryan during the year. During the year, the partnership borrowed $180,000 from a local bank for the following reasons: Purchased business equipment $120,000 Paid off existing liabilities in full $60,000 All of the partners are personally liable for all the partnership debts. The partnership incurred a $300,000 loss for the current year. What amount of the loss can Bryan claim on his current year individual tax return? a) $150,000 b) $100,000 c) $40,000 d) $0
b) $100,000
Brendan is a 27 percent owner of the Brendan-Jamin Partnership. He has an adjusted basis in this partnership of $23,000. Near the end of the current year, Brendan is given cash of $11,000 as a distribution from the partnership. He also receives land that has a tax basis to the partnership of $15,000 but a fair value of $19,000. After receiving this distribution, what is the tax basis of the land to Brendan? a) Zero b) $12,000 c) $15,000 d) $19,200
b) $12,000
Sharon provides services to a partnership in exchange for a capital interest of 30% worth $25,000. Sharon's basis in the partnership is? a) Zero since she exchanged services for her interest. b) $25,000, which must be reported by her as income in the year of receipt if the interest is vested. c) The present value of $25,000, computed over the lesser of Sharon's remaining life or the average remaining life of the other partners. d) Considered a profits interest and has a zero basis.
b) $25,000, which must be reported by her as income in the year of receipt if the interest is vested.
The adjusted basis in Carol's partnership interest is $50,000. She receives a distribution of $10,000 cash, land that has an adjusted basis of $30,000 and a FMV of $50,000. What is Carol's adjusted basis in the land? a) $20,000 b) $30,000 c) $40,000 d) $50,000
b) $30,000
Arlo Hampton has been asked to join the Arlington Partnership. According to the arrangement that has been worked out, Hampton will contribute land and a building with a total tax basis of $500,000 but a fair value of $900,000. There is a $300,000 note payable on the property and the partnership has agreed to accept that liability also. In exchange for this contribution, Hampton will receive a 40 percent interest in the partnership. Assuming that this transaction is finalized, what is the new partner's at-risk basis in the new partnership? a) $200,000 b) $320,000 c) $600,000 d) $720,000
b) $320,000 500,000 - 300,000 = 200,000 300,000 × 0.40 = 120,000 200,000 + 120,000 = 320,000
On January 1, Ruth had a basis in her partnership interest of $55,000. Thereafter, in liquidation of her entire interest, she received an apartment house and an office building. The apartment house has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. The office building has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. What is Ruth's basis in each property after the distribution? a) Apartment house $40,000, Office building $15,000 b) Apartment house $44,000, Office building $11,000 c) Apartment house $25,000, Office building $30,000 d) Apartment house $45,000, Office building $10,000
b) Apartment house $44,000, Office building $11,000
Which of the following statements about the effect of a sale or exchange of a partner's interest in a partnership is correct? a) The entire transaction is always treated as the sale of a capital asset. b) The partnership may make an election for an optional adjustment to the basis of partnership assets in the year the interest is transferred. c) The exchange of a partnership interest generally qualifies for like-kind exchange treatment. d) The gain on the sale of a partnership interest may not be reported on the installment basis.
b) The partnership may make an election for an optional adjustment to the basis of partnership assets in the year the interest is transferred.
Roger has a partnership interest with a $5,000 basis. The partnership has inventory valued at $250,000. Roger's share of the ordinary income to be received from the sale of the inventory would be $10,000. In the current year, Roger sells his partnership interest for $30,000. Roger will report the following gain: a) $25,000 capital gain b) $15,000 ordinary gain and $10,000 capital gain c) $10,000 ordinary gain and $15,000 capital gain d) No gain or loss
c) $10,000 ordinary gain and $15,000 capital gain
Under a partnership agreement, Sherry is to receive 25% of the partnership income, but not less than $10,000. The partnership has net income of $30,000 for the year before any allocation. Calculate Sherry's guaranteed payment from the partnership for the year. a) $10,000 b) $0 c) $2,500 d) $7,500
c) $2,500
The ABCD partnership has sales revenue of $300,000, cost of goods sold of $200,000, long-term capital gain of $12,000, repair expense of $20,000, and charitable contributions of $8,000. John Apple is one of the partners who holds a 25 percent share of the partnership. How should Mr. Apple report this partnership income on his own income tax return? a) Ordinary income from the partnership of $21,000 b) Ordinary income from the partnership of $18,000 and a $3,000 long-term capital gain c) Ordinary income from the partnership of $20,000, a $3,000 long-term capital gain, and a $2,000 charitable contribution d) Ordinary income from the partnership of $25,000, a $3,000 long-term capital gain, a $2,000 charitable contribution, and a $5,000 repair expense
c) Ordinary income from the partnership of $20,000, a $3,000 long-term capital gain, and a $2,000 charitable contribution
In which one of the following ownership combinations of Pete and Louie partnership would Pete be treated as owning more than 50% of the partnership? a) Pete 30 percent, Pete's Wife 10 percent, Pete's Aunt 60 percent b) Pete 45 percent, Pete's Uncle's Trust 55 percent c) Pete 10 percent, Pete's Wife's Corporation 90 percent d) Pete 30 percent, Pete's Father 10 percent, Pete's Nephew 60 percent
c) Pete 10 percent, Pete's Wife's Corporation 90 percent
Partner A received inventory items with a basis of $20,000 in complete dissolution of a partnership. Within five years, Partner A sells the entire inventory for $30,000. What amount and type of gain should Partner A report? a) $0 b) $10,000 short-term capital gain c) $10,000 long-term capital gain d) $10,000 ordinary gain
d) $10,000 ordinary gain
A partnership is formed when A contributes $70,000 in cash and B contributes $50,000. The partners share all profits and losses evenly. The partnership borrows $10,000 from the bank. What is partner A's at-risk balance? a) $60,000 b) $65,000 c) $70,000 d) $75,000
d) $75,000
Bytes, Ltd is a partnership formed by Warren Corporation, JCL Corporation, and Mike (an individual), to build and repair personal computers. The partners' profits interest in Bytes and their respective taxable year's are stated below. Assuming there is no business purpose for any particular year and no Section 444 election has been made, determine the most appropriate answer regarding the partnership's required taxable year. Profits & Capital Partner Interests Taxable Year End Warren Corporation 25% 25% May JCL Corporation 40% 40% Calendar Mike 35% 35% Calendar a) Since no business purpose to establish a particular year exists, the partnership must adopt the calendar taxable year. b) The partnership may adopt a taxable year ending either May 31 or December 31. c) Under the required tax year rules, the partnership must adopt a taxable year ending May 31. d) Under the required tax year rules, the partnership must adopt a calendar year since this is the tax year of the majority of the partners.
d) Under the required tax year rules, the partnership must adopt a calendar year since this is the tax year of the majority of the partners.
Scott contributed property having an adjusted basis to him of $10,000, to LMN Partnership for a 45% interest in the partnership. At the time of the contribution, the property had a fair market value of $20,000. What is the amount and character of Scott's gain on this transaction to be reported on his tax return? a) $0 b) $4,500 long term capital gain c) $10,000 ordinary income d) $10,000 long term capital gain
a) $0 Neither the partner nor the partnership recognizes a gain or loss when a person contributes property to the partnership in exchange for a partnership interest.
Fred is a partner in DEF Partnership. The adjusted basis of his partnership interest is $38,000, which includes his $30,000 share of partnership liabilities. Fred's share of unrealized receivables in the partnership is $12,000. Fred sold his share of the partnership interest for $45,000 cash. What is the amount and character of Fred's gain? a) $12,000 ordinary gain; $25,000 capital gain b) $25,000 ordinary gain; $12,000 capital gain c) $7,000 capital gain d) $37,000 capital gain
a) $12,000 ordinary gain; $25,000 capital gain
In return for a 20% partnership interest, Kathy contributed land having a $60,000 fair market value and a $30,000 basis to the partnership. The partnership assumes Kathy's $15,000 liability arising from her purchase of the land. The partnership had a liability balance of $4,000 immediately prior to the contribution. What is Kathy's basis in her partnership interest? a) $18,800 b) $30,000 c) $15,000 d) $15,800
a) $18,800 30,000 - 15,000 + 3,800 ($19,000 ($15,000 + $4,000) × 20%) = 18,800
Under a partnership agreement, Sybil is to receive 40% of the partnership's income, but not less than $15,000. The partnership's net income for the current year was $30,000 before considering the minimum guarantee amount. What amount can the partnership deduct as a guaranteed payment and what amount of income is Sybil required to report on her individual tax return for the current year? Partnership / Sybil a) $3,000 / $15,000 b) $15,000 / $15,000 c) $3,000 / $27,000 d) $15,000 / $27,000
a) $3,000 / $15,000
Under a partnership agreement, Gil is to receive 40% of the partnership income, but not less than $20,000. The partnership has net income of $100,000 for the current year without regard to the minimum guarantee and before any allocation. What is the amount and character of the income Gil is to receive for the current year? a) $40,000 distributive share b) $20,000 guaranteed payment; $32,000 distributive share c) $20,000 guaranteed payment; $20,000 distributive share d) $20,000 guaranteed payment; $40,000 distributive share
a) $40,000 distributive share
Phil and Don are equal partners in the Hilldale Company. Hilldale has a fiscal year ending on January 31. Phil and Don file their individual tax returns on a calendar year basis. For the tax year ending January 31, 20X1, Hilldale had taxable income from the active conduct of its business of $100,000 of which $60,000 was earned in 20X1. How much of their partnership taxable income should Phil and Don each include in computing their taxable income for their 20X1 tax year? a) $50,000 b) $20,000 c) $30,000 d) $0
a) $50,000 100,000 × 0.50 = 50,000
Western Enterprises, a general partnership, distributed $8,000 cash to Peter during the year. His adjusted basis (including his share of liabilities) in his partnership interest at the beginning of the year was $9,500. Peter's share of the partnership's taxable loss for the year was $1,000. What was Peter's ending basis in his partnership interest? a) $500 b) $1,000 c) $1,500 d) $0
a) $500
Joseph is a partner in JKL Partnership. The adjusted basis of his partnership interest is $38,000, which includes his $30,000 share of partnership liabilities. The partnership has no unrealized receivables or inventory items. Joseph sells his interest in the partnership for $15,000 in cash. He had been paid his share of the partnership income for the tax year. What is Joseph's gain (loss) on the sale? a) $7,000 b) $15,000 c) ($15,000) d) ($23,000)
a) $7,000
F & J Partnership had the following income for the current year: Income from operations $170,000 Tax-exempt interest $10,000 Dividends from foreign corporations $5,000 Net rental Income $20,000 Partners Fred and Joe share the profits and losses equally. What is Fred's share of the partnership income for the current year (excluding all partnership items which must be accounted for separately)? a) $85,000 b) $95,000 c) $97,500 d) $170,000
a) $85,000 $170,000 × 50% = 85,000
Brittani holds a 30 percent ownership interest in the Holden Partnership with an adjusted basis in this business of $13,000. The partnership conveys cash of $4,000 to her along with land that had a tax basis to the partnership of $10,000 but a fair value of $17,000. The partnership is not going out of business so this transfer is a nonliquidating distribution. Once Brittani receives the cash and the land, what is the tax basis of the land on her personal financial records? a) $9,000 b) $10,000 c) $13,000 d) $17,000
a) $9,000
The adjusted basis of Stan's partnership interest is $15,000. He receives a distribution of cash of $6,000 and property with an adjusted basis to the partnership of $11,000. (This was not a distribution in liquidation.) What is the basis of the distributed property in Stan's hands? a) $9,000 b) $11,000 c) $5,000 d) $17,000
a) $9,000
Payments made by a partnership to a partner that are determined without regard to the partnership income are called? a) Guaranteed payments b) Minimum payments c) Ordinary income d) Capital gains
a) Guaranteed payments
Kasemi is a single taxpayer who has $4,000 in long-term capital gains, $7,000 in short-term capital gains, and $2,000 in short-term capital losses. He is also a 50 percent partner in the OK partnership which had a long-term capital loss this year of $20,000. Kasemi is currently preparing his tax return for the year. Which of the following statements is correct? a) He can deduct a capital loss for the year on his tax return of $1,000. b) He can deduct a capital loss for the year on his tax return of $3,000. c) He can deduct a capital loss for the year on his tax return of $3,000 but must also report a short-term capital gain of $5,000. d) He must report a net short-term capital gain of $1,000.
a) He can deduct a capital loss for the year on his tax return of $1,000.
New ABC Partnership is organized with three general partners. The partners include a corporation with a tax year ending on March 31 and a 60% interest in partnership capital and profits, and two individuals, each having a calendar tax year and a 20% interest in partnership capital and profits. The partnership's required tax year ends on: a) March 31 b) September 30 c) October 31 d) December 31
a) March 31
Jane and Bill are equal partners in J & B Partnership. The partnership incurred a $10,000 loss last year. Jane and Bill's adjusted basis in the partnership at the beginning of last year was $2,000 each. Under the partnership agreement, Jane and Bill share all partnership profits and losses equally. The partnership borrowed $20,000 last year to purchase depreciable equipment to be used in the partnership's business. Jane was required under the partnership agreement to pay the creditor if the partnership defaulted. Based upon these facts, what is Jane and Bill's allowable loss on last year's tax return? Jane / Bill a) $2,000 / $2,000 b) $5,000 / $2,000 c) $5,000 / $5,000 d) $10,000 / $0
b) $5,000 / $2,000
Scott became a limited partner in the S&N Partnership with a $10,000 contribution on the formation of the partnership. The adjusted basis of his partnership interest at the end of the current year is $20,000, which includes his $15,000 share of partnership liabilities. He was paid his share of the partnership income for the current year. There are no unrealized receivables or inventory items. Scott sells his interest in the partnership for $10,000. Which of the following is correct regarding his gain or loss from the sale? a) $5,000 ordinary income b) $5,000 capital gain c) $10,000 ordinary loss d) $25,000 capital gain
b) $5,000 capital gain
On January 1, Year One, Ramierez contributes cash of $30,000 and equipment with a tax basis of $12,000 but a fair value of $21,000 to a new business called STR Partnership. As a result, Ramierez becomes a partner with a 40 percent ownership. In Year One, the business reports total income of $70,000 and paid each partner $20,000 in cash. What was Ramierez's basis in this business at the end of Year One? a) $42,000 b) $50,000 c) $59,000 d) $70,000
b) $50,000
The adjusted basis of Paul's partnership interest is $10,000. He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. (This was not a distribution in liquidation.) What is the basis of the distributed property in Paul's hands? a) $8,000 b) $6,000 c) $14,000 d) $2,000
b) $6,000
A partner's basis in a partnership interest includes the partner's share of a partnership liability in all of the following, EXCEPT: a) A liability that creates or increases the partnership's basis in any of its assets b) A partner's share of accrued but unpaid expenses of a cash basis partnership c) A liability that is a nondeductible, non-capital expense of the partnership d) A liability that gives rise to a current deduction to the partnership
b) A partner's share of accrued but unpaid expenses of a cash basis partnership
When payments are made to a retiring partner, or successor in interest of a deceased partner, for an interest in the partnership property, which of the following is correct? a) Payments that are based on partnership income are not taxable as a distributive share of partnership income but for the interest in the partnership. b) A retiring partner is treated as a partner until his/her interest in the partnership has been completely liquidated. c) Payments made for a retiring partner's share of the partnership's unrealized receivables are treated as made in exchange for partnership property if capital is not a material income producing factor and the retiring partner was a general partner. d) If the amount of the payment is based on partnership income, the payment is treated as a guaranteed payment.
b) A retiring partner is treated as a partner until his/her interest in the partnership has been completely liquidated.
Bill and Jimmy formed a new partnership. Bill contributes property that has an adjusted basis of $1,400 and a fair market value of $2,000 to the partnership. Jimmy contributes $2,000 in cash to the partnership. Each partner's capital account as reflected on the partnership's books is $2,000. What is the adjusted basis of each partner's interest? a) Bill's at $1,400 and Jimmy's at $1,400 b) Bill's at $1,400 and Jimmy's at $2,000 c) Bill's at $1,700 and Jimmy's at $1,700 d) Bill's at $2,000 and Jimmy's at $2,000
b) Bill's at $1,400 and Jimmy's at $2,000
In computing the ordinary income of a partnership, a deduction is allowed for? a) A net operating loss b) Guaranteed payments to partners c) Short term capital losses d) Contributions to qualified charities
b) Guaranteed payments to partners
The XYZ Partnership is comprised of three partners. Sam and Earl each own 30% of the capital and profits, and Tim owns 40% of capital and profits. Sam and Earl each use a tax year ending June 30. Tim's tax year ends September 30. What is the partnership's required tax year end? a) December 31 b) June 30 c) September 30 d) None of the above
b) June 30
Jayne's basis in her partnership interest is $55,000. In a distribution in liquidation of her entire interest, she receives a rental house and vacant lot, neither of which is inventory or unrealized receivables. The rental house has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. The vacant lot has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. What is Jayne's basis in each property after the distribution? a) Rental house $40,000; vacant lot $15,000 b) Rental house $44,000; vacant lot $11,000 c) Rental house $25,000; vacant lot $30,000 d) Rental house $45,000; vacant lot $10,000
b) Rental house $44,000; vacant lot $11,000
In filing a partnership income tax return, what is the purpose of Schedule K? a) Schedule K is used to determine the amount of capital gains and losses reported by the partnership. b) Schedule K is a summary schedule of all the partners' shares of the partnership's income, credits, and deduction. c)Schedule K is used to list out the various charitable contributions made by the partnership during the tax year. d) Schedule K is used to compute the amount of income taxes owed by the partnership on the income earned for the current year.
b) Schedule K is a summary schedule of all the partners' shares of the partnership's income, credits, and deduction.
Generally, a partner does not recognize loss on a partnership distribution unless all of the following requirements are met EXCEPT: a) The adjusted basis of the partner's interest in the partnership exceeds the distribution. b) The adjusted basis of the partner's interest in the partnership exceeds the fair market value of the property distributed. c) The partner's entire interest in the partnership is liquidated. d) The entire distribution is in money, unrealized receivables, or inventory items.
b) The adjusted basis of the partner's interest in the partnership exceeds the fair market value of the property distributed.
The Haynes and Jackson Partnership pays rent for its retail store in Year One of $42,000. How is this expense reported for federal income tax purposes? a) Each partner deducts his or her portion of the expense on their individual tax returns as a business expense (Schedule C). b) The partnership deducts the rent in arriving at the ordinary partnership business income for the period. c) Each partner deducts his or her portion of the expense in their individual tax returns as a miscellaneous itemized deduction. d) The partnership capitalizes the cost of the rent so that it does not affect the ordinary partnership business income.
b) The partnership deducts the rent in arriving at the ordinary partnership business income for the period.
Joan's adjusted basis in the So-Lo Partnership is $15,000. She received a non-liquidating cash distribution of $2,500 and a piece of land with an adjusted basis of $7,500 and a fair market value of $5,000. What is Joan's gain or loss to be recognized at the time of the distribution? a) $5,000 loss b) $2,500 loss c) $0 d) $5,000 gain
c) $0
Ed and Bob form a partnership with contributions of $30,000 each. Bob is not a general partner. Under the partnership agreement, Ed and Bob share all partnership profits and losses equally. The partnership borrows $70,000 to purchase depreciable equipment to be used in the partnership's business. Ed was required under the partnership agreement to pay the creditor if the partnership defaulted. Based upon these facts, what are Ed and Bob's basis in the partnership? Ed / Bob a) $30,000 / $30,000 b) $65,000 / $65,000 c) $100,000 / $30,000 d) $100,000 / $100,000
c) $100,000 / $30,000
William and Jorge start a partnership as equal partners where each invests $200,000 in cash. Jorge runs the day-to-day operations and receives guaranteed payments amounting to $60,000 per year. William does not actively participate and receives no guaranteed payment. The company buys 40,000 widgets for $6 each and sells them for $10 each in the current year. No other expenses are incurred. However, a cash distribution of $10,000 is made to each partner. On his individual income tax return, what is the total income reported by Jorge as a result of this partnership? a) $50,000 b) $60,000 c) $110,000 d) $120,000
c) $110,000
Susan has a 25% interest in the Boggs Partnership. The adjusted basis of her interest at the end of the current year is $40,000. She sells her interest in Boggs Partnership to Brian for $53,000 cash. The basis and fair market value of the partnership's assets (there are no liabilities) are listed below. There was no agreement between Susan and Brian for any allocation of the sales price. Basis (FMV) Cash $60,000 ($60,000) Unrealized receivables $0 ($32,000) Inventory $40,000 ($80,000) Fixed Assets $60,000 ($40,000) Total Assets $160,000 ($212,000) What is the amount and character of Susan's gain or loss? a) $18,000 ordinary income, $0 capital gain b) $0 ordinary income, $13,000 capital gain c) $18,000 ordinary income, $5,000 capital loss d) $6,500 ordinary income, $6,500 capital gain
c) $18,000 ordinary income, $5,000 capital loss
Bergen Partnership is a 70% owner of Mitchell Partnership. On August 1, 20X1, Mitchell sold land to Bergen for $40,000, which had an adjusted basis to Mitchell of $50,000. On September 1, 20X2, Bergen sold the land to an unrelated party for $70,000. What is the amount of Bergen's recognized gain? a) $0 b) $10,000 c) $20,000 d) $30,000
c) $20,000
Under terms of the partnership agreement, Joyce is entitled to a fixed annual payment of $20,000 and her partner $30,000 without regard to the income of the partnership. Joyce's distributive share of the partnership income is 10%. The partnership income is $60,000 of ordinary income after deducting the guaranteed payments. How much income from the partnership will be included on Joyce's individual income tax return? a) $6,000 b) $24,000 c) $26,000 d) $29,000
c) $26,000
Doc and Sleepy form a partnership. A number of years later, the partnership is dissolved. At that time, Doc has a tax basis in the partnership of $30,000. He receives a final liquidating dividend that is cash of $1,000 and a piece of land with a tax basis of $20,000 and a fair value of $34,000. The partnership did not have any unrealized receivables or appreciated inventory. None of the properties had been contributed by either partner. What is Doc's basis in the newly received land? a) Zero b) $20,000 c) $29,000 d) $34,000
c) $29,000
Lori's outside basis in the Briar Patch Partnership on January 1 was $11,000. She is a 50% partner and shares profits and losses in the same ratio. For the current year, the partnership's ordinary business income was $40,000 and tax-exempt interest income was $200. Lori received a cash distribution from the partnership of $700 in the current year. If the partnership were to liquidate on December 31, what would be Lori's basis for determining gain or loss? a) $24,900 b) $30,750 c) $30,400 d) $30,300
c) $30,400
Clyde is a limited partner in Marathon Marchers Partnership. He contributed $40,000 in cash on the formation of the partnership. His current adjusted basis in the partnership is $50,000, which includes his share of partnership liabilities of $10,000. Clyde's share of unrealized receivables in the partnership is $12,000. Clyde sold his partnership interest for $85,000 cash. What is the amount and character of Clyde's gain? Capital Gain / Ordinary Gain a) $0 / $35,000 b) $45,000 / $0 c) $33,000 / $12,000 d) $23,000 / $12,000
c) $33,000 / $12,000
Feel Good Partnership operates a business. Its tax year ends on December 31, 20X1. Partner X dies on April 15, 20X1. Partner X's and his estate's distributive share of partnership income, which is considered to be earnings from self-employment, for the year of death, is $12,000. What amount of income must be used to figure Partner X's self-employment tax for his final Form 1040? a) $0 b) $3,000 c) $4,000 d) $12,000
c) $4,000
Under a partnership agreement, June is to receive 40% of the partnership income but not less than $12,000 a year. The partnership has net income of $20,000. What is the guaranteed payment that the partnership can deduct in figuring its ordinary income on page 1 of Form 1065? a) $0 b) $3,200 c) $4,000 d) $8,000
c) $4,000
Jeff's interest in Partnership J & L has an adjusted basis of $150,000. In a complete liquidation of his interest, he received the following: Partnership's Adjusted Basis (Fair Market Value) Cash $70,000 ($70,000) Building $80,000 ($90,000) Computer $20,000 ($10,000) Inventory $30,000 ($30,000) What are Jeff's basis in the building and the computer respectively? Building / Computer a) $45,000 / $5,000 b) $80,000 / $20,000 c) $44,444 / $5,556 d) $40,000 / $10,000
c) $44,444 / $5,556
Comfy Chairs Manufacturing, Ltd. operates as a partnership and files Form 1065. Comfy manufactures inflatable lounge chairs. During the tax year ended December 31, Comfy generated income and expenses as stated below. What is the correct amount of ordinary income (loss) from trade or business activities Comfy should report on Schedule(s) K-1 for the current year? Employee wages $15,000 Income from rental real estate $20,000 Charitable contributions $500 Cost of goods sold $10,000 Income from chair sales $75,000 a) $65,000 b) $69,500 c) $50,000 d) $30,000
c) $50,000 Ordinary income = $50,000 ($75,000 sales - $15,000 wages - $10,000 COGS)
Jack sold his son a 25% share in JR and Associates for $25,000. Under the term of the partnership agreement, Jack receives 25% of all partnership income or loss plus a guaranteed payment of $60,000 per year for services he performed. His son did not perform any services. Capital is a material income-producing factor. For the current year, the partnership had a $50,000 profit before deducting Jack's guaranteed payment. What is the amount of income or loss Jack would report on his current year individual tax return, assuming he materially participates in the partnership activities? a) $15,000 guaranteed payment, $2,500 Loss b) $12,500 guaranteed payment, $2,500 Loss c) $60,000 guaranteed payment, $2,500 Loss d) $60,000 guaranteed payment
c) $60,000 guaranteed payment, $2,500 Loss 60,000 - 50,000 = 10,000 10,000 × 0.25 = 2,500
John and his daughter each own 50% of a partnership. The partnership has $80,000 profit this year before deducting any guaranteed payments. Capital is a material income-producing factor. John performed services worth $55,000, which is reasonable compensation. The daughter performed no services. How much income will John claim on his individual tax return? a) $40,000 b) $55,000 c) $67,500 d) $80,000
c) $67,500
Bob Fischer and Tonie Alexander formed a partnership four years ago and it has been relatively successful since that time. They are equal partners. In the current year, the business generated revenues of $900,000, dividend revenue of $70,000, rental income of $30,000, cost of goods sold of $600,000, utility expenses of $90,000, and depreciation expense of $30,000. In addition, the business made several charitable contributions with a total value of $22,000. Both Fischer and Alexander received cash distributions this year of $24,000. On Fischer's individual tax return for this year, what should be reported as the ordinary income (net business income) from this partnership? a) $68,000 b) $79,000 c) $90,000 d) $105,000
c) $90,000
Earl acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and that was subject to a mortgage of $12,000. Which of the following results is correct? Capital Gain Recognized / Basis of Partnership Interest a) $1,600 / $1,600 b) $0 / ($1,600) c) $4,000 / $8,000 d) $1,600 / $0
d) $1,600 / $0
Taxpayer A contributed stock with a FMV of $10,000 and a basis of $ 5,000 to ABC Partnership (which would be treated as an investment company if it had been incorporated) for a 50% interest. What is the partnership's basis in the stock? a) $0 b) $2,500 c) $5,000 d) $10,000
d) $10,000
Sharon's basis in S & P partnership is $185,000. In a complete liquidation of Sharon's interest in S & P, Sharon received the following: S & P's Basis (Fair Market Value) Cash $5,000 ($5,000) Building $50,000 ($100,000) Land $40,000 ($50,000) What is Sharon's basis in the building? a) $50,000 b) $100,000 c) $116,667 d) $120,000
d) $120,000
John owns 100% of a residential contracting business. Capital is a material income-producing factor. John's services to the business during the year were worth $30,000. John's son, Alex is interested in eventually working in his father's business. On January 1, Alex receives a gift of 20% of his father's interest in the business. Alex performed no services for the business during the year. If the resulting partnership had a profit of $100,000 for the current tax year, how much of the partnership profit should be allocated to Alex? a) $20,000 b) $35,000 c) $50,000 d) $14,000
d) $14,000
Linda sold her partnership interest for $25,000. Her adjusted basis at the time of the sale is $22,500 which includes her $12,500 share of partnership liabilities. When she initially invested in the partnership, she contributed $10,000 worth of equipment. There was no profit or loss at the partnership level at the time she sold her interest. What is the amount and nature of her gain or loss from the sale of her partnership interest? a) $7,500 ordinary loss b) $10,000 capital gain c) $12,500 ordinary gain d) $15,000 capital gain
d) $15,000 capital gain
Peter is a partner in the Waltz, Foxtrot and Tango Partnership. The adjusted basis of his partnership interest at the end of the year was $30,000, which includes his $12,000 share of partnership liabilities. Peter sold his interest in the partnership for $20,000 and was relieved of his share of partnership liabilities. What is the gain (loss) Peter must recognize? a) $0 b) $32,000 c) ($10,000) d) $2,000
d) $2,000
Tracy has a one-fourth interest in the TANY Partnership. The adjusted basis of her interest at the end of the current year is $30,000. She sells her interest in the TANY Partnership to Roy for $50,000 cash. There was no agreement between Tracy and Roy for any allocation of the sales price. The basis and fair market value of the partnership's assets (there are no liabilities) are as follows: Adjusted Basis (Fair Market Value) Cash $40,000 ($40,000) Unrealized receivables $0 ($36,000) Inventory $40,000 ($92,000) Land $40,000 ($32,000) Total $120,000 ($200,000) What is the amount and character of Tracy's gain or loss? a) $0 ordinary income, $0 capital gain b) $20,000 ordinary income, $0 capital gain c) $10,000 ordinary income, $10,000 capital gain d) $22,000 ordinary income, $2,000 capital loss
d) $22,000 ordinary income, $2,000 capital loss 50,000 - 30,000 = 20,000 total gain 92,000 - 40,000 = 52,000 + 36,000 = 88,000 88,000 × 1/4 = 22,000 20,000 - 22,000 = 2,000
A is a partner in partnership PRS and has an adjusted basis in its partnership interest of $6,500. In a complete liquidation of A's interest, A received the following: PRS's Basis in Property (Fair Market Value) Cash $0 ($0) Inventory $1,000 ($2,000) Asset X $500 ($4,000) Asset Y $1,000 ($1,000) What is A's basis in Assets X & Y? Asset X / Asset Y a) $500 / $1,000 b) $1,500 / $3,000 c) $3,500 / $1,000 d) $4,400 / $1,100
d) $4,400 / $1,100
In 20X1, Barb and Bet Partnership sold land having a $45,000 basis to the PTA Partnership for $35,000. Pat has a 55% capital and profits interest in the PTA Partnership, and his sister owns 60% of Barb & Bet Partnership. In 20X3 the PTA Partnership sells the land to an unrelated individual for $47,000. How much gain or loss should Barb and Bet Partnership recognize on the sale of the land? a) 20X1 $0; 20X3 $2,000 gain b) 20X1 $10,000 loss; 20X3 $0 c) 20X1 $0; 20X3 $12,000 gain d) 20X1 $0; 20X3 $0
d) 20X1 $0; 20X3 $0
If any partner's interest in a partnership changes during the year, which of the following cash basis items of the partnership must be prorated on a daily basis to determine each partner's share of partnership income or loss? a) Interest b) Taxes c) Payments for services or for the use of property d) All of the above
d) All of the above
In a sale or exchange of a partner's interest in a partnership, which of the following partnership assets is treated as unrealized receivables? a) Franchises b) Trademarks c) Mining property for which exploration expenses were deducted d) All of the above
d) All of the above
Members of a family who must meet special requirements to be recognized as partners for determining a partner's distributive share include all of the following EXCEPT: a) Spouses b) Ancestors c) Lineal descendants d) Cousins
d) Cousins
Which of the following items does not pass through directly to the partners of a partnership but is included in arriving at the ordinary income of the partnership? a) Rent revenue earned by the partnership b) Capital gains earned by the partnership c) Charitable contributions made by the partnership d) Guaranteed payments made to partners to compensate them for work done in the partnership
d) Guaranteed payments made to partners to compensate them for work done in the partnership
Harland A. Heathcliff is a partner in a major law firm. His basis in this partnership is $32,000. Heathcliff is given a nonliquidating distribution of land with a fair value of $50,000. Which of the following statements is true? a) If the land has a tax basis to the partnership of $43,000, Heathcliff must recognize a taxable gain of $11,000. b) If the land has a tax basis to the partnership of $43,000, the partnership must recognize a taxable gain of $7,000. c) If the land has a tax basis to the partnership of $43,000, Heathcliff will retain that same tax basis in his records. d) If the land has a tax basis to the partnership of $43,000, Heathcliff's basis in the land is $32,000.
d) If the land has a tax basis to the partnership of $43,000, Heathcliff's basis in the land is $32,000.
Jasmine, a calendar year taxpayer, is a partner in Jasmine and Prince Partnership that has a fiscal year ending March 31. Starting April 1, 20X1 Jasmine receives a fixed monthly guaranteed payment of $1,000 a month without regard to the income of the partnership. How much of the guaranteed payment will Jasmine report on her 20X1 tax return? a) $0 b) $8,000 c) $9,000 d) $12,000
a) $0
Jason owns a 55% capital interest in ABC Partnership. His brother owns 60% interest in XYZ Partnership. ABC sold a piece of property with an adjusted basis of $50,000 and a fair market value of $55,000 to XYZ for $45,000. What is ABC's recognized loss? a) $0 b) $5,000 c) $5,500 d) $10,000
a) $0
Wolf owns a 55% interest in Red partnership and a 75% interest in Hood Partnership. In February 20X1, Red sold land to Hood for $70,000. The land had a basis to Red of $85,000. In July 20X3, Hood sold the land to Ride, an unrelated individual, for $76,000. How much gain or (loss) must Hood Partnership recognize in 20X3? a) $0 b) $6,000 c) ($9,000) d) ($15,000)
a) $0
Partnership A purchased a tract of land for investment for $50,000. They immediately sold the land to Partnership B for $70,000. The fair market value of the land at the time of sale was $75,000. 50% of Partnership A is owned by Betty. Betty owns 30% of Partnership B and her mother, Irene, owns 30%. All other partnership owners are not related to Betty, Irene, or each other. Identify the nature and the amount of gain (loss) Partnership A should report for tax purposes for the year of the sale. a) Partnership A should report a short-term capital gain of $20,000. b) Partnership A should report an ordinary gain of $20,000 because the sale was made to a related party. c) Partnership A may elect to defer the $20,000 capital gain on the sale of the property. d) Partnership A should report $25,000 capital gain on the sale of the property.
a) Partnership A should report a short-term capital gain of $20,000.
For the current year, a partnership has sales revenue of $500,000, cost of goods sold of $300,000, capital gains of $60,000, salary expenses of $120,000, and charitable contributions of $30,000. If there are two equal partners, what does each report on their separate income tax returns for the current year? a) Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000 b) Partnership income of $25,000 and capital gain of $30,000 c) Partnership income of $55,000 d) Partnership income of $70,000 and charitable contributions of $15,000
a) Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000
Andrew buys land on July 9, Year One. Later, on October 2, Year Four, he and Jackson form a partnership. Andrew contributes the property to the partnership as part of his capital investment. On February 6, Year Five, this partnership sells the land and is now trying to determine the capital gain or loss to pass through to the two partners. What is the holding period of this land as reported by this partnership? a) The holding period begins on July 9, Year One. b) The holding period begins on October 2, Year Four. c) If the property is sold for a gain, the holding period begins on July 9, Year One, unless the value on October 2, Year Four was lower. d) If the property is sold for a loss, the holding period begins on October 2, Year Four, unless the value on July 9, Year One was lower.
a) The holding period begins on July 9, Year One.
Noah is a 34 percent owner of the Noah-Lily Partnership. He has an adjusted basis in this partnership of $28,000. Near the end of the current year, Noah is given cash of $30,000 as a distribution from the partnership. He also receives land that has a tax basis to the partnership of $4,000 but a fair value of $7,000. After receiving this distribution, what is the tax basis of the land to Noah? a) Zero b) $4,000 c) $6,000 d) $7,000
a) Zero
Owners of the Granger Partnership have decided to liquidate and go out of business. Hermione is one of the partners who holds a partnership interest with a basis of $5,000. The only thing she receives from the liquidation is a machine with a book value of $7,000 but a fair value of $7,600. Hermione held a 20 percent ownership in the partnership. What gain does Hermione recognize for tax purposes on the receipt of this liquidation distribution? a) Zero b) $1,520 c) $2,000 d) $2,600
a) Zero
The partnership of Randolph and Macon operates in central Virginia. Total capital is $200,000, $150,000 for Randolph, and $50,000 for Macon. They allow Ashland to enter the partnership with a 30 percent ownership by contributing land and a building. This property has a fair value of $120,000 but a tax basis to Ashland of $92,000. What gain should Ashland recognize on this exchange of the property for ownership in this partnership? a) Zero b) $4,000 c) $8,400 d) $28,000
a) Zero
The L&J Auto Parts Store operated as an accrual based partnership and filed a Form 1065. In addition to receipts from parts sales of $250,000, they had the following other items of income and expenses for the current year: Salaries $(50,000) Insurance $(5,000) Charitable Contributions $(5,000) Licenses $(5,000) Rental Income $25,000 Guaranteed payments to partners $(75,000) What is the correct Ordinary Income or Loss that L&J should report on Form 1065 for the current year? a) $85,000 b) $115,000 c) $100,000 d) $150,000
b) $115,000
Thomas was a partner with Jefferson in the TJ Partnership. Thomas was allocated 40 percent of all profits and losses. During Year One, the accountants for the business determined net income to be $200,000. That total included a guaranteed salary of $60,000 paid to Thomas as well a charitable contribution to the local church of $12,000. What was the increase from these events in the adjusted gross income reported by Thomas on his income tax return? a) $140,000 b) $144,800 c) $153,800 d) $168,800
b) $144,800
Columbus is a partner in New World Partnership. He also works in the operations of this business. He receives a guaranteed salary for his work of $2,000 per month. At the end of the year, he also receives a distribution that is equal to 32 percent of the profits for that year. On December 31 of this year, he received a check for $38,000 as his portion of the profits. In determining the ordinary income of the partnership for tax purposes this year, how much of these payments will be viewed as an expense? a) Zero b) $24,000 c) $38,000 d) $62,000
b) $24,000
Marlene acquired a 30% interest in a partnership by contributing property that had an adjusted basis to her of $25,000, fair market value of $50,000 and a $40,000 mortgage. The partnership assumed the liability. What is Marlene's gain or loss on the contribution of her property to the partnership? a) $0 b) $3,000 gain c) $12,000 gain d) $10,000 loss
b) $3,000 gain
Apple and Bear are equal partners in a partnership. Cat becomes a 40 percent partner by contributing property with a tax basis of $400,000 and a fair value of $550,000 to the partnership. This property has a $100,000 liability attached to it which is accepted by the partnership. What is Cat's at-risk basis in this partnership? a) $300,000 b) $340,000 c) $450,000 d) $490,000
b) $340,000
Charlotte is a 38 percent owner of the Charlotte-Emma Partnership. She has an adjusted basis in this partnership of $31,000. Near the end of the current year, Charlotte is given cash of $35,000 as a distribution from the partnership. She also receives land that has a tax basis to the partnership of $3,000 but a fair value of $5,000. After receiving this distribution, what gain should Charlotte recognize for tax purposes? a) Zero b) $4,000 c) $7,000 d) $9,000
b) $4,000 35,000 - 31,000 = 4,000
David and Robert form an equal partnership. David contributed $10,000 cash to the partnership and Robert contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. What is the partnership's basis for depreciation of the property and how is the depreciation deduction allocated among the partners (assuming the depreciation rate is 10% per year)? Partnership's Basis for Depreciation / Annual Depreciation Deduction (David / Robert) a) $4,000 Basis / $200 David / $200 Robert b) $4,000 Basis / $400 David / $0 Robert c) $4,000 Basis / $0 David / $400 Robert d) $10,000 Basis / $500 David / $500 Robert
b) $4,000 Basis / $400 David / $0 Robert
Bill, a partner in Williams-Sonic, is a calendar-year taxpayer. Williams-Sonic's partnership year ends on June 30. For the partnership year ending June 30, 20X1, Bill's distributive share of partnership profits is $4,000. On August 20, 20X1, Bill dies and his estate succeeds to his partnership interest. For the partnership year ending June 30, 20X2, Bill and his estate's distributive share is $6,000. What is Bill's self-employment income for self-employment tax purposes in 20X1? a) $4,000 b) $5,000 c) $10,000 d) $7,000
b) $5,000
Greg, a partner in Masters Partnership, receives $1,000 cash and property worth $2,000 in which Masters has a basis of $1,500. Greg's outside basis at the time of the distribution is $20,000. The Partnership has assets of $40,000 and no outstanding liabilities. This distribution is at the end of the year after partnership income (loss) has been recorded. How much gain should Greg recognize on the distribution and what is his basis in the property received? a) Greg recognizes a gain of $500 on the property received. His basis in the property is $2,000. b) Greg recognizes gain of $1,500 on the property and cash received. His basis in the property received is $3,500. c) Greg recognizes no gain on the property received. His basis in the property received is $1,500. d) Greg recognizes a gain of $1,000. His basis in the property received is $1,500.
c) Greg recognizes no gain on the property received. His basis in the property received is $1,500.
Which of the following statements about payments made to a retiring partner or successor in interest of a deceased partner that are not made in exchange for an interest in the partnership property is correct? a) Payments made within five years of the partner's retirement or death are always treated as made in exchange for an interest in the partnership property. b) Payments made within five years of the partner's retirement or death are always treated as distributive shares of partnership income. c) If the amount of the payment is based on partnership income, the payment is taxable as a distributive share of partnership income. d) If the amount of the payment is based on partnership income, the payment is treated as a guaranteed payment.
c) If the amount of the payment is based on partnership income, the payment is taxable as a distributive share of partnership income.
Nancy and Drew have been equal partners in the Mystery Partnership for a number of years. During the current year, Nancy was given a cash distribution of $5,000 along with land having a tax basis of $30,000 and a fair value of $40,000. Which of the following statements is true? a) If this is a nonliquidating distribution and Nancy has a basis in the partnership of $46,000, she will have a tax basis for the land of $40,000. b) If this is a nonliquidating distribution and Nancy has a basis in the partnership of $46,000, she will report taxable income of $5,000. c) If this is a liquidating distribution and Nancy has a basis in the partnership of $46,000, she will have a tax basis for the land of $41,000. d) If this is a liquidating distribution and Nancy has a basis in the partnership of $46,000, she will report taxable income of $5,000.
c) If this is a liquidating distribution and Nancy has a basis in the partnership of $46,000, she will have a tax basis for the land of $41,000.
Bob and Zelda have owned a partnership together for seven years. Bob holds a 25 percent share with Zelda owning the remainder. This year, the partnership bought land with a building for $300,000. Cash of $50,000 was paid from the partnership assets and a note was signed for the rest. How does that transaction impact the at-risk basis that Bob has in this partnership? a) No impact on Bob's at-risk basis b) Decreases by $25,000 c) Increases by $62,500 d) Increases by $75,000
c) Increases by $62,500
All of the following items are treated as unrealized receivables in a sale of a partnership interest EXCEPT: a) Certain farm land for which expenses for soil and water conservation or land clearing were deducted b) Property subject to recapture of depreciation under Sections 1245 and 1250 c) Property distributed that has a fair market value in excess of the partner's basis d) Franchises, trademarks, or trade names
c) Property distributed that has a fair market value in excess of the partner's basis
In filing a partnership income tax return, what is the purpose of Schedule K-1? a) Schedule K-1 lists the charitable contributions made by the partnership this year. b) Schedule K-1 lists the capital gains and losses incurred by a partnership. c) Schedule K-1 indicates to the individual partners their share of the various income (loss) items reported by a partnership. d) Schedule K-1 indicates the allocations of capital relating to the owners of a partnership.
c) Schedule K-1 indicates to the individual partners their share of the various income (loss) items reported by a partnership.
Which of the following would NOT total more than 50% ownership in T, F, & J Partnership for Ted? a) Ted 40% Ted's Wife 5% Ted's Son 10% Ted's Brother 45% b) Ted 40% Ted's Wife 20% Ted's Dad's estate 10% Ted's Brother 30% c) Ted 40% Ted's Wife 5% Ted's Cousin 55% d) Ted 40% Ted's Wife 5% Ted's Son's Corporation 55%
c) Ted 40% Ted's Wife 5% Ted's Cousin 55%
If the partner's distributive share of a partnership item cannot be determined under the partnership agreement, it is determined by his or her interest in the partnership. The partnership interest is determined by taking into account all of the following items EXCEPT: a) The partner's relative contributions to the partnership. b) The interests of all partners in economic profits and losses (if different from interests in taxable income or loss) and in cash flow and other non-liquidating distributions. c) The amount of the partnership's non-recourse liabilities. d) The right of the partners to distributions of capital upon liquidation.
c) The amount of the partnership's non-recourse liabilities.
Rose and Irene each have a 50% interest in a partnership that started business on July 1. Rose uses a calendar year while Irene has a fiscal year ending November 30. Which of the following is correct? a) The partnership may also use the calendar year because at least 50% is owned by a calendar year taxpayer. b) The partnership must use the fiscal year ending November 30 because it results in a deferral of 11 months. c) The partnership must use the fiscal year ending November 30 because it results in a deferral of 1 month. d) The partnership may use either the calendar year or fiscal year ending November 30 because each partner owns an equal percentage.
c) The partnership must use the fiscal year ending November 30 because it results in a deferral of 1 month.
Regarding family partnerships, if a husband and wife carry on a business together and share in the profits and losses: a) They must have a formal partnership agreement to be considered a partnership. b) They can report the income or loss on a combined Schedule C (Form 1040) if they are filing a joint return. c) They could each carry his or her share of the partnership income or loss from the Form 1065 Schedule K-1 to their joint or separate individual income tax returns. d) Combine the self-employment income on a single Schedule SE (Form 1040).
c) They could each carry his or her share of the partnership income or loss from the Form 1065 Schedule K-1 to their joint or separate individual income tax returns.
Otis has a tax basis in the Barney and Otis partnership of $52,000. Title to an acre of land is conveyed to Otis as a nonliquidating distribution from this partnership. Which of the following is correct? a) If the land has a tax basis to the partnership of $38,000 but a fair value of $53,000, Otis has an increase in taxable income from the distribution. b) If the land has a tax basis to the partnership of $38,000 but a fair value of $53,000, the partnership has a taxable gain on the distribution. c) If the land has a tax basis to the partnership of $53,000 but a fair value of $57,000, Otis has an increase in taxable income from the distribution. d) If the land has a tax basis to the partnership of $53,000 but a fair value of $57,000, Otis records the land as having a tax basis of $52,000.
d) If the land has a tax basis to the partnership of $53,000 but a fair value of $57,000, Otis records the land as having a tax basis of $52,000.
Jane gave each of her two children, Jake & Jeff, a 30% interest in her clothing store. Capital is not a material income-producing factor. Jeff is 21 and has worked in the store since he was 15 and has developed significant sales skills and helps his mom with the management duties. Jake is 25, married and has a job in another state and does not participate in any of the store's management decisions. Who is(are) recognized as a partner(s) for tax purposes? a) Jane b) Jane and Jake c) Jane, Jake, and Jeff d) Jane and Jeff
d) Jane and Jeff
Shizaam Bakery operates as a calendar year partnership. Shizaam's two partners, Kalla and Henry share profits and losses 60% and 40%, respectively. For tax year ended December 31, Shizaam had the following income and expense: Gross sales $270,000 Cost of goods sold $80,000 Interest income from bank $2,500 Employee wages $50,000 Short-term capital loss $5,000 Compute the partnership's ordinary income and flow through amounts to partners. a) Kalla ordinary income $85,500 and short-term capital loss $3,000; Henry ordinary income $57,000 and short-term capital loss $2,000 b) Kalla ordinary income $82,500; Henry ordinary income $55,000 c) Kalla ordinary income $81,000, interest income 1,500 and short-term capital loss $3,000; Henry ordinary income $54,000, interest income 1,000 and short-term capital loss $2,000 d) Kalla ordinary income $84,000, interest income $1,500 and short-term capital loss $3,000; Henry ordinary income $56,000, interest income $1,000 and short term capital loss $2,000
d) Kalla ordinary income $84,000, interest income $1,500 and short-term capital loss $3,000; Henry ordinary income $56,000, interest income $1,000 and short term capital loss $2,000
Archie sells his 50% interest in XYZ partnership to Hal for $5,000 cash. His outside basis in the partnership is $3,500. The partnership has the following assets: Basis (FMV) Inventory $6,000 ($8,000) Capital Asset $2,000 ($1,000) Archie should properly recognize? a) Ordinary income of $2,000 and a capital loss of $500 b) Capital gain of $1,500 on the sale of his partnership interest c) Ordinary income of $1,500, the amount of cash he received d) None of the above
d) None of the above
Abby sells her 50% interest in the ABC partnership to Marty for $1,000 cash. Her outside basis at that time is $775. The partnership has inventory and a capital asset with respective basis of $1,200 and $300 and respective fair market values of $1,500 and $450. Abby should properly recognize? a) Ordinary income of $300 and a capital loss of $75 b) Capital gain of $225 on the sale of her partnership interest c) An ordinary gain of $225 since she received cash of at least that amount d) Ordinary income of $150 and a capital gain of $75
d) Ordinary income of $150 and a capital gain of $75 $225 = ($1,000 sales price - $775 outside basis) $150 = ($1,500 inventory FMV - $1,200 inventory basis) × 50% 225 - 150 = 75
Ted and Jane form a cash basis general partnership with cash contributions of $20,000 each. They share all partnership profits and losses equally. They borrow $60,000 and purchase depreciable business equipment. Jane, however, is required to pay the creditor if the partnership defaults. Which of the following is correct? a) Ted and Jane each have a basis of $80,000 in the partnership. b) Ted has a basis of $50,000, and Jane has a basis of $80,000. c) Ted and Jane each have a basis of $50,000 in the partnership. d) Ted has a basis of $20,000 and Jane has a basis of $80,000 in the partnership.
d) Ted has a basis of $20,000 and Jane has a basis of $80,000 in the partnership.
