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Exam 20: Forming and Operating Partnerships

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Question 51

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A partnership may use the cash method despite having a corporate partner when the partnership's average gross receipts for the prior three taxable years don't exceed _____.

A) $5,000,000
B) $1,000,000
C) $26,000,000
D) Partnerships may never use the cash method if they have corporate partners

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

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Question 52

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Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss)for the year?

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($28,000),...

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Question 53

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Which of the following items will affect a partner's tax basis?

Fred has a 45 percent profits interest and 30percent capital interest in the SAP Partnership, and his tax basis before considering his share of SAP's current-year loss is $13,000. Included in his tax basis is a $4,600 share of recourse debt and a $7,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $17,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, at-risk, and passive activity loss limitations?

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

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

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

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?

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

John, a limited partner of Candy Apple, LP, is allocated $30,000 of ordinary business loss from the partnership. Before the loss allocation, his tax basis is $20,000 and his at-risk amount is $10,000. John also has ordinary business income of $20,000 from Sweet Pea, LP, as a general partner and ordinary business income of $5,000 from Red Tomato as a limited partner. How much of the $30,000 loss from Candy Apple can John deduct currently?

An additional allocation of partnership debt or relief of partnership debt is considered to be a deemed cash contribution or cash distribution, respectively.

How does additional debt or relief of debt affect a partner's basis?

What is the difference between a partner's tax basis and at-risk amount?

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?

Which of the following does not adjust a partner's basis?

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss)for the year?

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

A partner's self-employment earnings (loss) may be affected by her share of ordinary business income (loss) and any guaranteed payments she receives. The impact of these amounts typically depends on the status of the partner. Which of the following statements correctly describes the effect these items have on the partner's self-employment earnings (loss) ?

What general accounting methods may be used by a partnership, and how and by whom are they selected?