Term free essay sample

ANS:T A contribution of property to a partnership followed by a distribution soon thereafter may be recharacterized as a disguised sale of the property by the partner to the partnership. A disguised sale does not receive tax-deferred treatment under  § 721. PTS:1REF:p. 21-10 3. Jim and Nancy formed an equal partnership on June 1 of the current year. Jim contributed $10,000 cash and land with a basis of $8,000 and a fair market value of $6,000. Nancy contributed equipment with a basis of $14,000 and a value of $16,000. Nancy’s tax basis in her interest is $14,000; Jim’s tax basis is $18,000. ANS:T Jim’s basis includes the $8,000 substituted basis for the contributed land plus $10,000 cash, for a total of $18,000. Nancy’s basis is $14,000, a substituted basis from the contributed equipment. PTS:1REF:Example 7 | Example 14 4. Rachel and Barry formed the equal RB Partnership during the current year, with Rachel contributing $100,000 in cash and Barry contributing land (basis of $60,000, fair market value of $80,000) and equipment (basis of $0, fair market value of ,000). We will write a custom essay sample on Term or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Barry recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000. ANS:F Under  § 721, neither the partnership nor a partner will generally recognize gain or loss on contribution of property to a partnership. Barry’s substituted basis in his partnership interest is his $60,000 basis in the assets contributed ($60,000 basis in land plus $0 basis in equipment). PTS:1REF: Example 8 | Example 9 5. John and Ken formed the equal JK Partnership during the current year, with John contributing $50,000 in cash and Ken contributing land (basis of $30,000, fair market value of $20,000) and equipment (basis of $0, fair market value of $30,000). Ken recognizes no gain or loss on the contribution and his basis in his partnership interest is $30,000. ANS:T Under  § 721, neither the partnership nor a partner will generally recognize gain or loss on contribution of property to a partnership. Ken’s basis in his partnership interest is the $30,000 basis in the assets contributed ($30,000 basis in land plus $0 basis in equipment). PTS:1REF: Example 8 | Example 9 6. Julie is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributed a parcel of this land (basis $60,000; fair market value $58,000) to a partnership, which ill also hold it as inventory. After three years, the partnership sells the land for $56,000. The partnership will recognize a $4,000 ordinary loss on sale of the property. ANS:T Since the property was not a capital asset in Julie’s hands, the partnership is not subject to the requirement that precontribution losses (realized and recog nized by the partnership within five years of contribution) be treated as capital losses. Example 16 7. The XYZ Partnership, a calendar year taxpayer, was formed on April 1 of the current year. It incurred $23,000 of legal fees on formation. XYZ may deduct $5,000 and amortize the remaining $18,000 over 180 months, for $900 in the current year. ANS:T All organization costs incurred by the end of the first taxable year of the partnership may be expensed (up to $5,000) and the balance amortized over 180 months commencing with the month the taxpayer begins business. PTS:1REF:Example 18 8. PaulCo, DavidCo, and Ralph form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, while DavidCo and Ralph use a November 30 and December 31 fiscal year-end, respectively. Since PaulCo is a majority partner, this partnership will use a January 31 year-end. ANS:F The partnership has no majority partners, since PaulCo does not own more than 50%. Also, the three principal partners do not have the same year-end. Therefore, the least aggregate deferral method must be used to determine the partnership’s year-end. PTS:1REF:Figure 21-2 9. Meagan purchased her partnership interest from Lisa on the first day of the current year for $30,000 cash.