LO.4, 5, 6 Your client, the Williams Institute of Technology (WIT), is a widely held C corporation and is not subject to the passive loss limitations. WIT is a 60% partner in the Research Industries Partnership (RIP). WIT is located at 76 Bradford Lane, St. Paul, MN 55164. The controller, Jeanine West, has sent you the following note and a copy of WIT’s 2009 Schedule K–1 from the partnership.

Excerpt from client’s note RIP expects its 2010 operations to include the following.

Net loss from operations $200,000 Capital gain from sale of land 100,000 The land was contributed by DASH, the other partner, when its value was $260,000. The partnership sold the land for $300,000. The partnership used this cash to repay all the partnership debt and pay for research and development expenditures, which a tax partner in your firm has said RIP can deduct this year.

We want to be sure we can deduct our full share of this loss, but we do not believe we will have enough basis to do so.

Items Reported on the 2009 Schedule K–1 WIT’s share of partnership recourse liabilities $90,000 WIT’s ending capital account balance 30,000 Draft a letter to the WIT controller that describes the following.

l WIT’s allocation of partnership items.

l WIT’s basis in the partnership interest following the allocation.

l Any limitations on loss deductions.

l Any recommendations you have that would allow WIT to claim the full amount of losses in 2010.

WIT’s 2009 Schedule K–1 accurately reflects the information needed to compute its basis in the partnership interest. The research expenditures are fully deductible this year, as the partner said.

Your client has experience researching issues in the Internal Revenue Code, so you may use some citations. However, be sure that the letter is written in layperson’s terms and that legal citations are minimized.