36. LO.4 - Identify elections available to a partnership and specify the tax treatment of expenditures of a newly formed partnership. Tom and Missy form TM Partnership, Ltd. (a limited partnership), to own and operate certain real estate. Tom contributed land, and Missy contributed cash to be used for setting up the entity and creating a plan for developing the property. Once a development plan was in

    place, the partnership sold interests in the partnership to investors to raise funds for constructing a shopping center.

    The partnership incurred expenses of $30,000 for forming the entity and $60,000 for starting the business (e.g., setting up the accounting systems, locating tenants, and negotiating leases). It also paid $5,000 in transfer taxes for changing the ownership of the property to the partnerships name. The brokerage firm that sold the interests to the limited partners charged a 6% commission, which totaled $600,000.

    The calendar year partnership started business in November this year. Describe how these initial expenses are treated by the partnership.

and

52. LO.11 - Illustrate a partners capital account rollforward and explain why the year-end balance might differ from the partners year-end basis in the partnership interest. Assume the same facts as in Problem 51, and assume that Suz-Anna prepares the capital account rollforward on the partners Schedules K1 on a tax basis.

    1. What is Suzys capital account balance at the beginning of the tax year?

    2. What is Suzys capital account balance at the end of the tax year?

    3. What accounts for the difference between Suzys ending capital account and her ending tax basis in the partnership interest?