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26 Feb 2018

George contributed nondepreciable property with a basis of$100,000 and a fair market value of $120,000 to the PearPartnership in 2012 in exchange for a 40% interest in thepartnership. In 2013, he receives a nonliquidating distributionfrom the partnership of other property with a basis to thepartnership of $40,000 and a fair market value of $80,000. Thebasis in his partnership interest at the time of the distributionwas $55,000. How much gain or loss does George recognize on thedistribution? (Assume no other distributions have been made toGeorge, the property he originally contributed is still owned bythe partnership, and this is not a disguised sale transaction.):Select one:

a. $20,000 gain.

b. $25,000 gain.

c. $0 gain or loss.

d. $40,000 gain.

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Beverley Smith
Beverley SmithLv2
1 Mar 2018

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Dolly receives a proportionate, nonliquidating distribution fromthe Melon Partnership. The distribution consists of $40,000 cashand property with an adjusted basis to the partnership of $140,000and a fair market value of $170,000. Immediately before thedistribution, Dolly's adjusted basis for her partnership interestis $160,000. Dolly's basis in the noncash property received is:Select one:

a. $170,000.

b. $120,000.

c. $140,000.

d. $ 40,000.

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.


8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

Organization of business as partnership or corporation¬¬¬ On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children’s stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests. Individual Asset Basis to Pr FMV Partnership Interest Al Cash 15,000 15,000 15% Bob Accts Receivable -0- 20,000 20% Clay Office Equipment 13,000 15,000 15% Dave Land 50,000 15,000 15% Ed Building 15,000 150,000 20% Fred Services ? 15,000 15% The following other information about the contributions may be of interest: • Bob contributes accounts receivable from his proprietorship, which uses the cash method of accounting. • Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment. • The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property. • Fred, an attorney, drew up all the partnership agreements and filed the necessary paperwork. He receives a full 15% capital and profits interest for his services. 1. How much gain, loss, or income must each partner recognize as a result of the formation? 2. How much gain, loss, or income must the partnership recognize as a result of the formation? 3. What is each partner’s basis in his partnership interest? 4. What is the partnership’s basis in its assets? 5. What is the partnership’s initial book value of each asset? 6. What effects do the depreciation recapture provisions have on the property contributions? 7. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.

Now answer the same questions assuming that this is the organization of a corporation instead of a partnership.

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