Problems

Include all answers on this paper. Please keep answers brief - answer the question as you would to a client. Show your work . If you are unsure of an issue, state your assumption and related conclusion. Then state the opposing consequences if your assumption is incorrect.

1. On January 1, 2020, Adam and Bill form a partnership. Adam contributes $50,000 cash in exchange for a 50% interest. Bill contributes property with a tax basis of $70,000 and a fair market value of $50,000 in exchange for a 50% interest. Bill purchased the property on July 1, 2010.

Does Adam or Bill need to recognize any gain/loss on their contributions?

What is Bills tax basis in the partnership?

When does Bills holding period begin?

What is Adams tax basis in the partnership?

When does Adams holding period begin?

2. At the beginning of 2020, Jessicas basis in her partnership interest was $35,000. The partnership had no liabilities at that time. Jessica received a K-1 from the partnership for the 2020 tax year that showed the following:

Box K:	Share of partnership liabilities	8,700
Line 1:	Ordinary income	13,500
Line 6a:	Dividend income	5,000
Line 8:	Short-term capital loss	1,400
Line 13a:	Charitable contributions	500
Line 13w:	Portfolio deductions	1,800
Line 19a:	Cash withdrawal	20,000

Compute Jessicas basis at the end of 2020.

3. Partner A owns a 60% interest in the capital and profits of the ABC partnership. During the year Partner A sells marketable securities to the partnership for their fair market value of $30,000. Partner A has a $40,000 basis in those securities. The partnership intends to hold the securities as an investment. What are the tax consequences of this transaction?

4. R exchanged a non-depreciable proprietorship parking lot ($23,000 fair market value and $15,000 tax basis) for a 10 percent capital interest in a partnership. The partnership uses the property for four years and then sells it for $25,000. How much gain should be allocated to R on the sale of the parking lot.

5. At the beginning of the current year, Corporation M had a $50,000 basis in its 50% interest in the M&N Partnership. For the year, M&N incurred a $168,000 operating loss and a $32,000 capital loss and received $20,000 of dividend income. The amount of the partnerships debts did not change during the year and it made no distributions to its partners. Based on these facts, what amount of M&Ns ordinary loss and capital loss may M recognize during the current year?

6. Partner T received a current distribution from the RST Partnership consisting of:

	Tax Basis	FMV
Cash	$20,000	$20,000
Account Receivable	$0	$6,000
Capital Asset	$1,500	$7,000

The distribution did not change Ts profit and loss sharing ratio. Immediately prior to the distribution, Ts outside basis in his partnership interest was $25,000. After the distribution, what basis does T have in the receivables, the capital asset, and his partnership interest?

7. Bob purchased a 20% interest in the BC partnership for $20,000 on January 1, 2019. He purchased another 10% interest in the BC partnership for $10,000 on December 1, 2019. As of January 1, 2020, what is Bobs holding period in his partnership interest?

8. Tucker, Meagan, and Patrick are equal partners in a partnership that has the following assets:

	Basis	FMV
Cash	240,000	240,000
Inventory	180,000	240,000
Land	150,000	240,000

Each partners outside basis is $190,000.

Tuckers interest in the partnership is redeemed in exchange for $240,000 cash. How much gain does Tucker recognize? What is the character of any gain/loss?

9. Amy, Bob, and Charlie are equal partners is ABC Partnership. ABC has assets worth $240,000 and no liabilities. Amy has an outside basis of $20,000. ABC has no income or loss for the current year (so 706(d) does not apply). What are the tax consequences to Amy in each of the below independent scenarios?

ABC distributes $4,000 cash to Amy in a non-liquidating distribution:

ABC distributes a capital asset with a FMV of $4,000 and an inside basis of $3,000 to Amy in a non-liquidating distribution:

ABC distributes $40,000 of cash to Amy in a non-liquidating distribution:

ABC distributes a capital asset with a FMV of $40,000 and an inside basis of $8,000 to Amy in a non-liquidating distribution:

10. Guy is a 20% partner in a coffee shop. He receives a guaranteed payment of $40,000 for his services as manager. Before considering his guaranteed payment the partnership has only one tax item, $30,000 of ordinary income. What will be Guys allocation of income, by line item, on his K-1 this year?

Line 1: Ordinary Income

Line 4: Guaranteed Payment

25. Elaine owns 70% of the capital and profits interests of a partnership. The partnership needs land to build a new warehouse; Elaine agrees to sell a parcel she owns to the partnership for its value, $800,000. The parcels basis to Elaine is $1,100,000. A few months later the partnership is forced to abandon its warehouse plans and sells the parcel for $850,000. What are the tax consequences of the transactions?
26. Terry is a 40% partner in Organic Works, which manufactures and distributes organic cosmetics. She personally owns a specialized machine for processing organic compounds worth $700,000 (basis $210,000) that she contributes to the partnership. Within three days the partnership distributes $420,000 to her. What are the tax consequences of the transaction?