Jenkins has a one-third capital and profits interest in the Maverick General Partnership. On January 1, year 1, Maverick has $120,000 of general debt obligations and Jenkins has a $50,000 tax basis (including his share of Maverick?s debt) in his partnership interest. During the year, Maverick incurred a $30,000 nonrecourse debt that is not secured by real estate. Because Maverick is a rental real estate partnership, Jenkins is deemed to be a passive participant in Maverick. His share of the Maverick losses for year 1 is $75,000. Jenkins is not involved in any other passive activities, and this is the first year he has been allocated losses from Maverick

Subject: What Happens to Suspended Partnership Losses When the Partnership Interest Is Sold? Facts: Jenkins has a one-third capital and profits interest in the Maverick General Partnership. On January 1, year 1, Maverick has $120,000 of general debt obligations and Jenkins has a $50,000 tax basis (including his share of Maverick's debt) in his partnership interest. During the year, Maverick incurred a $30,000 nonrecourse debt that is not secured by real estate. Because Maverick is a rental real estate partnership, Jenkins is deemed to be a passive participant in Maverick. His share of the Maverick losses for year 1 is $75,000. Jenkins is not involved in any other passive activities, and this is the first year he has been allocated losses from Maverick. Questions to Be Answered in Memo to Client: 1. 2. 3. Determine how much of the Maverick loss Jenkins will currently be able to deduct on his tax return for year 1. List any losses suspended under each of the following: a) tax basis limitations; b) at-risk limitations: and c) passive activity loss limitations. If Jenkins sells his interest on January 1 of year 2, what happens to each of his suspended losses from year 1? Memo Requirements: Prepare in good form as you learned in Tax 1 and have seen in the homework solutions in Tax II, and as further described below, a brief memo (no more than 4 pages) to the client (Jenkins) summarizing your conclusions as to the above 3 questions. Your memo must include the following: 1) A "Facts, Assumptions, and Representations" section . For this, summarize the known facts and information from the problem, ie copy and paste the wording of the problem including the facts from parts a1 and a2 as to the amounts of his suspended losses by type of suspended loss, and the fact he is he is selling his partnership interest. 2) A section titled "Issues" For question 3, there are really 3 parts to the question: 1) is the suspended loss deductible under the basis rules if the partner sells his interest; 2) is the suspended loss deductible under the at risk rules if the partner sells his interest; and 3) is the suspended passive loss deductible if the partner sells his interest? 3) An "Analysis" section by reference to each type of suspended loss, ie 3 separate sections of the analysis devoted to each suspended loss. Include in your "Analysis" section, applicable reference citations as to the correct way to cite your \"primary\" authority sources, ie refer to these tax authorities in your analysis and present them in a way that will support your conclusion. In using the tax authorities as support for your analysis, you are required to use the precise language of the authority and citation (ie note your source using a footnote or include the source citation right in the body of the analysis), but do not try to paraphrase tax language as your primary way of creating your analysis. You should copy and paste word for word any actual code section, regulation, or court case discussion you use, and cite your source in a footnote. Of course when applying the law to the facts, you should paraphrase as appropriate in your own words once you have used the exact language of the authority. 4) "Conclusion" section A Include any planning or pitfalls or reporting issues that should also be considered if any 5) Attach a worksheet (template provided on next page) illustrating a rollforward of Jenkin's basis, at risk, and passive activity limitations, which will show your end of year 1 suspended losses, which are the losses at issue in year 2. 6) Attach all pages of the full tax authorities you found To get the full credit for this assignment, you must attach all printed copies of the tax authorities you found to support your analysis and conclusions, and manually indicate in your printed sheets , by highlighting with a colored marker, in original ink to evidence this is your own work and not a copy, of the exact portion of that authority you are using. Electronic links, or emails to me will NOT be accepted, as the point of this is to have you do actual research and copies and highlighting are the best practical evidence we will have that you found and saw the authorities you claim to have read as support. The "client" imposed deadline for this memo is Tues April 5 th, after we spend a week on Partnerships. NOTHING electronic will be accepted, as I have no time for printing anything. Attach everything together with a staple, black clip, or paper clip , with your name on it. Description (1) Beginning Tax basis and At-risk amount (2) Increase in nonrecourse debt (3) Tax basis and At-risk amount before ordinary business loss (4) Ordinary business loss (5) Loss clearing the Tax basis hurdle (6)Loss suspended by Tax basis hurdle (7) Loss clearing Tax basis hurdle (8) Loss clearing At-risk hurdle Tax Basis Limitation At-risk Limitation Passive Activity Limitation (9) Loss suspended by Atrisk hurdle (10) Passive activity loss (11) Passive income (12) Loss used to offset Passive income (13) Passive activity loss carryover