Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

G and L organize the GL partnership/ Each contributes $50 for his partnership interest. The partnership purchases an apartment building for $1,000, making a $100

  1. G and L organize the GL partnership/ Each contributes $50 for his partnership interest. The partnership purchases an apartment building for $1,000, making a $100 down payment and paying the remainder of the price with a mortgage loan. The principal of the mortgage loan is payable in a single payment after 12 years. The gross income and deductions of the partnership for each of the first few years are expected to be as follows:

Income (rent)

$240

Expenses

Cash operating exp

$150

Interest exp

90

Depreciation

50

Total expenses

-290

Net income (loss)

($50)

The partnership agreement allocates all depreciation deductions to L. All other income and deductions are allocated to the partners equally.

The partnership agreement provides that all income, gains, losses and deductions will be reflected in the partners capital accounts (which will be maintained in accordance with Reg. 1.704-1(b)(2)(iv); and each partner will be entitled on liquidation (of either the partnership or the partner's interest) to distribution of an amount equal to his positive capital account balance.

Assume that the partnership operates for two years, and then sells the building at the beginning of year 3 for, alternatively, $1,100 or $800. How will the partnership's income, gain, loss and deduction (including depreciation deductions) be allocated between G and L, and will the allocations be respected for federal income tax purposes, in the following alternative variations?

  1. The partnership is a general partnership, the mortgage lender has full recourse against the partnership and the partners, and any partner having a deficit in his capital account when either the partnership or his interest is liquidated must then make an additional capital contribution equal to that deficit.
  2. The partnership is a limited partnership with G as the general partner and L as the limited partner; the mortgage loan is recourse; and the partnership agreement says nothing about capital account deficit restoration on liquidation of a partners interest.
  3. Same as (b), except L is obligated to retore any deficit in his capital account to the extent that it does not exceed $50, and there is no QIO provision [within the meaning of Reg 1.704-1(b)(2)(ii)(d)] in the partnership agreement.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cryptocurrency 101 The Millennials Guide To Understanding And Investing In Crypto

Authors: Candide Ahouandjinou, Jamal Modica

979-8387066771

More Books

Students also viewed these Accounting questions

Question

Different types of Grading?

Answered: 1 week ago

Question

Explain the functions of financial management.

Answered: 1 week ago

Question

HOW MANY TOTAL WORLD WAR?

Answered: 1 week ago

Question

Discuss the scope of financial management.

Answered: 1 week ago