Reference no: EM13496359

1. Question:  Alpha Corporation, Beta Corporation, and Cappa Corporation form the ABC Partnership.  Alpha owns 40% of the partnership profits and capital, and uses a June 30 tax year.  Beta owns 30% of partnership profits and capital and also uses a June 30 tax year.  Cappa owns 30% of partnership profits and capital and uses a September 30 tax year.  What tax year must the ABC Partnership adopt?

2. Question: Argo Corporation, which uses a June 30 tax year, forms an equal partnership with Bango Corporation, which uses a July 31 tax year.  What tax year must the partnership adopt?

3. Facts:  Reia and Long to go into business together to make action films such as National Treasure 5: The Ghosts of Foggy Bottom.  They form the RL Partnership.  Long contributes $50,000 cash and a parcel of land with a fair market value of $50,000 and an adjusted basis of $20,000, while Reia contributes $100,000 cash.  Long and Reia agree to comply with The Big Three, to share all profits and losses equally, and to use the traditional method in making §704(c) allocations.  RL sells the parcel of land for $70,000.

a. Question : What are RL's tax gain (if any) and book gain (if any) on the sale of the land?

b. Question : How are the tax gain (if any) and book gain (if any) allocated between Long and Reia?

4. Facts:  Carla and Nathan decide to go into business together to create trailers for films made by the RL Partnership.  Carla and Nathan form the CN Partnership.  They have equal capital and profits interests in the CN Partnership, and they share the economic risk of loss form recourse liabilities according to their partnership interests.  In addition, Carla has a special allocation of all depreciation on buildings owned by the partnership.  The buildings are financed with recourse liabilities.  The depreciation reduces Carla capital account, and liquidation is in accordance with the capital account balances.  Depreciation for the CN Partnership is $50,000 annually. 

Carla and Nathan each have $50,000 capital account balances on January 1, 2008.  Will the special allocations have substantial economic effect for 2008, 2009, and 2010 in the following independent situations?

a. :  The partners have no obligation to repay negative capital account balances, and the partnership's operations (other than depreciation) each year have no effect on the capital accounts.

b. : The partners have an obligation to repay negative capital account balances.

c. : The partners have no obligation to repay negative capital account balances. The partnership operates at its break-even point (excluding any depreciation claimed) and borrows $200,000 on a full recourse basis on December 31, 2009. 

5. Facts : Shveta and Mayra decide to go into business together to cater movie premiers for the RL Partnership--and to put Cosi out of business!  They form the SM Partnership as equal partners.  They make the following contributions.

Individual	Asset	Basis to Partner	Fair Market Value
Shveta	Cash	$45,000	$45,000
	Inventory	$14,000	$15,000
Mayra	Land	$45,000	$40,000
	Building	$50,000	$100,000

The SM Partnership assumes the $80,000 recourse mortgage on the building that Mayra contributes, and the partners share the economic risk of loss on the mortgage equally.

a. Question:  What amount and character of gain or loss must each partner recognize on the formation of the partnership?

b. Question : What is each partner's basis in his or her partnership interest?

c. Question:  What is the partnership's basis in each asset?

d. Question : What is the partnership's initial book value of each asset?

e. Question : The SM Partnership has been in business for a few years.  As a  result of various transactions, Shveta and Mayra each have a $50,000 basis in their partnership interests at the beginning of this tax year.  For the current tax year, the partnership reports the following tax items:

net income from operations	$20,000
long-term capital gain	$8,000
short-term capital loss	$2,000
dividend income	$1,000

What are Shveta's and Mayra's bases in their partnership interests at the close of the tax year?

f. Question:  Assume that, at the beginning of this year, Mayra's outside basis in her partnership interest was $14,500.  During the year, Mayra received a $3,000 cash distribution from the SM Partnership. At the close of the year, Schedule K-1 showed that her distributive share of the partnership's current-year operating loss was $20,000, while her shares of current-year dividends and long-term capital gains were $3,400 and $1,300 respectively.  What is Mayra's basis in the partnership interest as a result of the distributive shares?

6. Facts :  Long bought land for $100 two years ago to hold for investment. The land is now worth $200.  Long and Nathan formed an investment partnership on January 1.  Long contributed the land and Nathan contributed $200 in cash.  Each became an equal partner in the partnership's capital, profits and losses.

a. Question : What does the partnership's balance sheet at the beginning of the year look like?  Please fill in the empty boxes as appropriate.

Assets				Capital Accounts
	Basis	Book			Tax	Book
Land				Long
Cash				Nathan
TOTAL				TOTAL

b. Facts:  Under the "traditional method" of accounting for §704(c) gain, how will the partnership's gain or loss for income tax purposes be allocated between Long and Nathan if the partnership sells the land for the following amounts:

 i. Question : $200.  Please fill in the empty boxes as appropriate.

Capital Accounts
	Tax	Book
Long
Nathan
TOTAL

 ii. Question : $250.  Please fill in the empty boxes as appropriate.

Capital Accounts
	Tax	Book
Long
Nathan
TOTAL

iii. Question: $140.  Please fill in the empty boxes as appropriate.

Capital Accounts
	Tax	Book
Long
Nathan
TOTAL

iv. Question: $60.  Please fill in the empty boxes as appropriate.

Capital Accounts
	Tax	Book
Long
Nathan
TOTAL

c. Question :  Assume the partnership invests Nathan's cash in stock that appreciates and the partnership sells the stock for $300 (basis in stock is $200) in the same taxable year in which it sells the land for $140.  Would your answer above to question 6(b)(iii) differ if the partnership used the "traditional method with curative allocations"?  Please fill in the empty boxes as appropriate.

	Long		Nathan
	Tax	Book	Tax	Book
Initial Balance
Land Sale
Stock Sale
TOTAL

 i. Question : What if the partnership does not sell the stock and, in fact, has no items of income, gain, loss or deduction other than from the sale of the land: would your answer question 6(b)(iii) differ if the partnership sold the land for $140 and used the "traditional method with curative allocations?"

d. Question:  How would your answer to question 6(b)(iii) differ if the partnership sold the land for $140 and used the "remedial allocation method"?  Please fill in the empty boxes as appropriate.

	Long		Nathan
	Tax	Book	Tax	Book
Initial Balance
Land Sale
Remedial Allocation
TOTAL

7. Facts :  Cristina has a $25,000 basis in her partnership interest before receiving a current distribution of $4,000 cash and land with a $30,000 fair market value and a $14,000 basis to the partnership. 

a. Question :  Determine Cristina's recognized gain or loss, basis in distributed property, and ending basis in her partnership interest.

b. Question :  How does your answer to part (a) change if the partnership's basis in the land is $24,000 instead of $14,000?

 c. Question :  How does your answer to part (a) change if Cristina receives only $28,000 cash instead of $4,000 and the land?

 d. Question :  How does your answer to part (a) change if, in addition to the cash and land, Cristina receives inventory with a $25,000 fair market value and a $10,000 basis and receivables with $3,000 fair market value and $0 basis?