Source: Federal Income Tax: Code and Regulations-Selected Sections (2020-2021)
QUESTIONS 1. Zelda and Sidney are partners in an accrual-method, calendar- year partnership. The partnership leases office space from Sidney, a cash-method, calendar-year taxpayer, for $10,000 per year (fair rental value). a. The partnership pays its rent for 2000 in June of 1999. What are the tax consequences to the partnership and Sidney? PARTNERSHIPS AND PARTNERS: STUDY PROBLEMS b. 2. The partnership pays its rent for 1999 in June of 2000. What are the tax consequences to the partnership and Sidney? A partnership hires Victor, a general contractor, to renovate the partnership's office space. Victor usually charges around $200,000 for the renovations requested by the partnership. Rather than simply hire Victor in the ordinary course, the partnership admits Victor as a partner in the partnership in exchange for Victor's contribution of cash. In addition, the partnership agrees to specially allocate and distribute $100,000 of gross income to Victor for two years (the amount of time it will take Victor to complete the renovations). The partners have a fair market value call option on Victor's partnership interest exercisable in three years. Assuming the partnership has $5,000,000 of gross income and $3,000,000 of expenses in the first year that Victor is a partner and that the amount of gross income and expenses is consistent with the partnership's performance over the last ten years, how is the special allocation of $100,000 treated? QUESTIONS 1. Zelda and Sidney are partners in an accrual-method, calendar- year partnership. The partnership leases office space from Sidney, a cash-method, calendar-year taxpayer, for $10,000 per year (fair rental value). a. The partnership pays its rent for 2000 in June of 1999. What are the tax consequences to the partnership and Sidney? PARTNERSHIPS AND PARTNERS: STUDY PROBLEMS b. 2. The partnership pays its rent for 1999 in June of 2000. What are the tax consequences to the partnership and Sidney? A partnership hires Victor, a general contractor, to renovate the partnership's office space. Victor usually charges around $200,000 for the renovations requested by the partnership. Rather than simply hire Victor in the ordinary course, the partnership admits Victor as a partner in the partnership in exchange for Victor's contribution of cash. In addition, the partnership agrees to specially allocate and distribute $100,000 of gross income to Victor for two years (the amount of time it will take Victor to complete the renovations). The partners have a fair market value call option on Victor's partnership interest exercisable in three years. Assuming the partnership has $5,000,000 of gross income and $3,000,000 of expenses in the first year that Victor is a partner and that the amount of gross income and expenses is consistent with the partnership's performance over the last ten years, how is the special allocation of $100,000 treated
