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Exam 9: Forming and Operating Partnerships

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Question 41

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Which of the following entities is not considered a flow-through entity?

A) C corporation.
B) S corporation.
C) Limited liability company (LLC) .
D) Partnership.

E) None of the above
F) B) and C)

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Question 42

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In what order are the loss limitations for partnerships applied?

A) Tax basis; at-risk amount; passive activity loss.
B) Passive activity loss; tax basis; at-risk amount.
C) Tax basis; passive activity loss; at-risk amount.
D) At-risk amount; tax basis; passive activity loss.

E) B) and D)
F) A) and B)

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Question 43

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

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

Income earned by flow-through entities is usually taxed only once at the entity level.

This year, Reggie's distributive share from Almonte Partnership includes $8,000 of interest income, $4,000 of dividend income, and $60,000 of ordinary business income. A. Assume that Reggie materially participates in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax? B. Assume that Reggie does not materially participate in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax?

The character of each separately stated item is determined at the partner level.

Peter, Matt, Priscilla, and Mary began the year in the PMPM General Partnership sharing profits, losses, and capital equally. They had a tax basis at the beginning of the year of $3,000, $10,000, $8,000, and $11,000, respectively. Early in the year, Mary provided general consulting services to the partnership and received an additional 15 percent profits, losses, and capital interest in the partnership. The liquidation value of her additional interest was $45,000. Later the same year, the partnership received cash contributions of $25,000 from Peter and Matt that it used to repay the partnership's $35,000 recourse debt. According to state law, the partners shared responsibility for this debt in accordance with their loss-sharing ratios. What is each partner's tax basis after adjustment for these transactions?

On June 12, 20X9, Kevin, Chris, and Candy Corp. came together to form Scrumptious Sweets General Partnership. Now, Scrumptious Sweets must decide which tax year-end to use. Kevin and Chris have calendar year-ends and each holds a 35 percent profits and capital interest. However, Candy Corp. has a September 30^th year-end and holds the remaining 30 percent profits and capital interest. What tax year-end must Scrumptious Sweets adopt, and what rule mandates this year-end?

Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank contributed $50,000 in cash and $50,000 worth of equipment. Frank's adjusted basis in the equipment was $35,000. Bob contributed $50,000 in cash and $50,000 worth of land. Bob's adjusted basis in the land was $30,000. On 3/15/X4, Soxy Socks sells the land Bob contributed for $60,000. How much gain (loss) related to this transaction will Bob report on his X4 return?

Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob's outside basis in Freedom, LLC, is $10,000. This includes his $2,500 one-fourth share of the LLC's debt. Bob's 704(b) capital account is $17,000. If Tom bought Bob's LLC interest for $17,000, what would Tom's outside basis be in Freedom, LLC?

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 percent profits interest in the LLC, with C Inc. having a 10 percent 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?

In each of the independent scenarios below, how does the partner or partnership determine its holding period in the property received? a. A partner contributes property in exchange for a partnership interest b. The partnership receives contributed property c. A partner contributes services in exchange for a partnership interest d. A partner purchases a partnership interest from an existing partner

Hilary had an outside basis in LTL General Partnership of $10,000 at the beginning of the year. LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000, a $10,000 reduction in Hilary's share of partnership debt, a cash distribution of $20,000, and tax-exempt income of $3,000. What is Hilary's adjusted basis at the end of the year?

Ruby's tax basis in her partnership interest at the beginning of the partnership's tax year was $13,000. The following items were included in her Schedule K-1 from the partnership for the year: Determine what amounts related to these items Ruby will report on her tax return assuming her tax basis and at-risk amount are equal and that she is a material participant in the partnership's activities.

Actual or deemed cash distributions in excess of a partner's outside basis are generally taxable as capital gains.

The least aggregate deferral test uses the profit percentage of each partner to determine the minimum amount of tax deferral for the partner group as a whole in determining the permissible tax year-end of a partnership.

On March 15, 20X9, Troy, Peter, and Sarah formed Picture Perfect General Partnership. This partnership was created to sell a variety of cameras, picture frames, and other photography accessories. When it was formed, the partners received equal profits and capital interests, and the following items were contributed by each partner: -Troy-cash of $3,000, inventory with an FMV and tax basis of $5,000, and a building with an FMV of $22,000 and adjusted basis of $10,000. Additionally, the building was secured by a $10,000 nonrecourse mortgage. -Peter-cash of $5,000, accounts payable of $12,000 (recourse debt for which each partner becomes equally responsible), and land with an FMV of $27,000 and tax basis of $20,000. -Sarah-cash of $2,000, accounts receivable with an FMV and tax basis of $1,000, and equipment with an FMV of $40,000 and adjusted basis of $3,500. Sarah also contributed a $23,000 nonrecourse note payable secured by the equipment. What is each partner's outside basis, and how much gain (loss) must the partners recognize in 20X9, when Picture Perfect was formed?

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income, (2) Decrease for share of separately stated loss items, and (3) Decrease for distributions?