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Sam contributes property with a basis of $10,000 and a fairmarket value of $20,000 to a partnership in return for apartnership interest and $10,000. Sam will recognize $10,000 on thetransfer. (t/f)

A partner that contributes built-in gain property will not beallocated the built-in gains upon the sale of the property if thepartnership waits 7 years to sell the property from date ofdistribution.(t/f)

S corporation shareholders only include debt in their stockbasis if they personally contributed the loan to thecompany.(t/f)

A partner that exchanges services for a partnership interestwill recognize gain equal to the value of the partnership interestreceived.(t/f)

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019
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Related questions

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.


8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

Tatiana partnership

The Tatiana Partnership is a calendar year, cash basis limitedpartnership which was formed on 1 January 2014. The partnership isin the business of training attack dogs and cats (business code541990). The address for the partnership and both partners is 300Montgomery Street, Suite 1050, San Francisco, CA 94104. Allbusiness is carried on in the San Francisco Bay Area, and thepartnership has no foreign activities of any kind. The partnershipreturn is filed in Ogden, Utah. The partnership’s federal ID numberis 94-0070070.

The partnership agreement follows the provisions of IRC section704 and provides that gains, losses, and depreciation will beallocated in such a manner so as to account for the differencesbetween agreed market values and the tax basis of assetscontributed to the partnership. For example, should the agreedvalue exceed the tax basis of a contributed asset, any gain due tothe difference shall be allocated to the contributing partner uponsale of the asset. Any remaining gain shall be allocated in the“regular” ratio in which partners share income and losses.Furthermore, depreciation expense on contributed assets is to beallocated to the noncontributing partner as if the asset’s FAIRMARKET VALUE were EQUAL to its tax basis; any remainingdepreciation is to be allocated to the contributing partner.

Outside of the special IRC Section 704 allocations discussed inthe preceding paragraph, all other items are allocated in the“normal” profit and loss ratios for the partnership.

Data on the partners, the assets contributed by them, and theprofit and loss ratios agreed upon are as follows:

Tyr Slesnick (SSN; 007-06-1991), the general partner

Arekay Mitchell (SSN: 006-01-1985), the limited partner.

Tyr – 60% profit and loss ratio. Tyr contributed a parcel ofland (acquired on 1/1/1995 as investment property) and its relatedmortgage. The land originally cost $200,000 and had a fair marketvalue of $300,000 as of the date it was contributed to thepartnership. There was a $180,000 balance on the qualifiednonrecourse mortgage assumed by the partnership. The land is knownas “Whitaker Acres”. The capital contribution of the land and itsrelated mortgage was made on the date the partnership was formed.The land was used by the Tatiana Partnership as a location to trainthe dogs.

Arekay – 40% profit and loss ratio. Arekay contributed a dogtraining machine valued at $80,000. The dog training machine wasacquired on 1/1/2009 at a cost of $120,000. The machine originallyhad a ten year life (5 years left@ 1/1/2014) and is depreciated onthe straight-line method using a 10 year life at the rate of$12,000 of depreciation per year. Accumulated depreciation of$60,000 ($120,000 cost less $60,000 accumulated depreciationthrough 12/31/2013) as of the date it was contributed to thepartnership.

The partnership keeps its books on the tax basis method withappropriate supporting schedules maintained to keep track of fairmarket value where required. Each partner’s ownership of capital isper the books.

A. You need to make a journal entry to record Tyr’s capitalcontribution of the land subject ot the mortgage as of1/1/2014.

B. You need to make a journal entry to record Arekay’s capitalcontribution of the dog training machine as of 1/1/2014.

C. On 12/31/2014 (the last day of the year), the partnershippurchases a new piece of land (Darien Acres) for $4,500,000. The$4,500,000 purchase was 100% financed via a $1,000,000 RECORSE LOANfrom Union Bank and a $3,500,000 QUALIFIED NONRECOURSE FINANCINGfrom Wells Fargo bank. The recourse loan plus one year’s interestat 10% is due in full on 12/31/2014, and no interest is payableuntil maturity. The qualified nonrecourse loan requires quarterlyinterest payments (at an 8% annual rate) with the first quarterlyinterest payment of $70,000 not being due until 3/31/2015 (i.e.,next year). This land will be used as a larger site on which totrain the dogs and cats – i.e., it’ll be used as business land.

D. You need to record the depreciation expense on the dogtraining machine. Please note that the machine is deprecated usinga 10 year life for both regular and “alternative minimum tax”.Depreciation. As noted in the facts, the machine’s tax depreciationis $12,000 ($120,000 original cost divided by 10 years). If themachine’s depreciation had been based on it’s $80,000 FMV, thedepreciation based on FMV would have been $16,000 ($80,000 FMVdivided by the 5 year remaining life). You’re going to have tofigure out what to do and how to allocate the depreciation betweenthe partners.

E. The business purchased $920,000 of additional trainingequipment. This equipment was purchased on the day the partnershipwas formed, and it has been fully paid for as of the end of theyear. The partnership desires to claim the MAXIMUM depreciationallowed under the tax law, so you’ll need to compute this andprepare a journal entry recording the depreciation. The propertywas purchased on 1/2/2013.

F. The property contributed by Tyr was known as “WhitakerAcres”. This property was SOLD on July 4th of thecurrent year for $600,000 ($420,000 of cash is shown in a separateaccount, but no entry has been made to record the sale, so you’llneed to make the journal entry necessary to record the sale anddecide how to allocate the gain between the two partners.

REQUIRED:

1. Prepare journal entries to record the events listed in “A”through “F” above. Label the entries “A” through “F”>

2. Post the journal entries to the cash activity and prepare a“working trial balance”.

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