tax problems - questin and answer ,.,.

ch 21
tax problems - questin and answer ,.,. ch 21

Question
46. LO.7, 13 Assume the same facts
GET THE ANSWER>> https://solutionlly.com/downloads/tax-problems-questin-and-answer-
ch-21
tax problems - questin and answer ,.,. ch 21

Question
46. LO.7, 13 Assume the same facts as in Problem 45. What income, gains, losses, and
deductions does Amy report on her income tax return? Based on the information provided, what
other calculations is she required to make?

47. LO.11 Assume the same facts as in Problem 45. Prepare Amy’s capital account rollforward
from the beginning to the end of the tax year. How does her capital account differ from her basis
as calculated in Problem 45?

48. LO.7, 9, 13 The KL Partnership is owned equally by Kayla and Lisa. Kayla’s basis is
$20,000 at the beginning of the tax year. Lisa’s basis is $16,000 at the beginning of the year. KL
reported the following income and expenses for the current tax year:
Sales revenue $150,000
Cost of sales 80,000
Distribution to Lisa 15,000
Depreciation expense 20,000
Utilities 14,000
Rent expense 18,000
Long-term capital gain 6,000
Payment to Mercy Hospital for Kayla’s medical expenses 12,000
a. Determine the ordinary partnership income and separately stated items for the partnership.
b. Calculate Kayla’s basis in her partnership interest at the end of the tax year. What items
should Kayla report on her Federal income tax return?
c. Calculate Lisa’s basis in her partnership interest at the end of the tax year. What items should
Lisa report on her Federal income tax return?

49. LO.7, 9, 12, 13 How would your answers in Problem 48 change if partnership revenues
were $100,000 instead of $150,000?

50. LO.3, 7, 9, 10 Suzy contributed business-related assets valued at $360,000 (basis of

$200,000) in exchange for her 40% interest in the Suz-Anna Partnership. Anna contributed land
and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60%
interest. Anna’s property was encumbered by a qualified nonrecourse debt of $100,000, which
was assumed by the partnership. The partnership reports the following income and expenses
for the current tax year:
Sales $560,000

1/8
Utilities, salaries, and other operating expenses 360,000
Short-term capital gain 10,000
Tax-exempt interest income 4,000
Charitable contributions 8,000
Distribution to Suzy 10,000
Distribution to Anna 20,000
During the current tax year, Suz-Anna refinanced the land and building. At the end of the year,
Suz-Anna had recourse debt of $100,000 for partnership accounts payable and qualified
nonrecourse debt of $200,000.
a. What is Suzy’s basis after formation of the partnership? Anna’s basis?
b. What income and separately stated items does the partnership report on Suzy’s
Schedule K–1? What items does Suzy report on her tax return?
c. Assume that all partnership debts are shared proportionately. At the end of the tax year, what
are Suzy’s basis and amount at risk in her partnership interest?

51. LO.11 Assume the same facts as in Problem 50, and assume that Suz-Anna prepares the
capital account rollforward on the partners’ Schedules K–1 on a tax basis.
a. What is Suzy’s capital account balance at the beginning of the tax year?
b. What is Suzy’s capital account balance at the end of the tax year?
c. What accounts for the difference between Suzy’s ending capital account and her ending tax
basis in the partnership interest?

52. LO.3, 7, 9, 10 Assume the same facts as in Problem 50, except that Suz-Anna was formed
as an LLC instead of a general partnership.
a. How would Suz-Anna’s ending liabilities be treated?
b. How would Suzy’s basis and amount at risk be different?

53. LO.3, 7, 9, 12 Bryan and Cody each contributed $120,000 to the newly formed BC
Partnership in exchange for a 50% interest. The partnership used the available funds to acquire
equipment costing $200,000 and to fund current operating expenses. The partnership
agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other
items of income and loss will be allocated equally between the partners.
Upon liquidation of the partnership, property will be distributed to the partners in accordance
with their capital account balances. Any partner with a negative capital account must contribute
cash in the amount of the negative balance to restore the capital account to $0.
In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and
depreciation expense of $36,000. In its second year, the partnership reported $40,000 of
income from operations (before depreciation), and it reported depreciation expense of $57,600.
a. Calculate the partners’ bases in their partnership interests at the end of the first and second
tax years. Are any losses suspended? Explain.
b. Does the allocation provided in the partnership agreement have economic effect?
Explain.

54. LO.7, 9, 12 Assume the same facts as in Problem 53. On the first day of the third tax year,
the partnership sold the equipment for $150,000 and distributed the cash in accordance with the
partnership agreement. The partnership was liquidated at this time.
a. Calculate the partners’ bases in their partnership interests after reflecting any gain or loss on
disposal of the equipment.
b. How will partnership cash balances be distributed to the partners upon liquidation?
2/8
c. What observations can you make regarding the value of a deduction to each partner?

55. LO.10 The MGP General Partnership was created on January 1 of the current year by
having
Melinda, Gabe, and Pat each contribute $10,000 cash to the partnership in exchange for a one-
third interest in partnership income, gains, losses, deductions, and credits. On December

31 of the current year, the partnership balance sheet reads as follows:

Basis FMV Basis FMV
Assets $60,000 $75,000 Recourse debt $30,000 $30,000
Melinda, capital 14,000 19,000
Gabe, capital 14,000 19,000
Pat, capital 2,000 7,000 $60,000 $75,000
Pat’s capital account is less than Melinda’s and Gabe’s capital accounts because Pat has
withdrawn more cash than the other partners have.
How do the partners share the recourse debt as of December 31 of the current year?

56. LO.3, 9, 10 Paul and Anna plan to form the PA LLC by the end of the current year.
The members will each contribute $80,000 of cash, and in addition, the LLC will borrow
$240,000 from First State Bank. The $400,000 will be used to buy an investment property.
The property will serve as collateral, and both members will be required to personally guarantee
the debt.
The tentative agreement provides that 65% of operating income, gains, losses, deductions, and
credits will be allocated to Paul for the first five years the LLC is in existence.
The remaining 35% is allocated to Anna. Thereafter, all LLC items will be allocated equally. The
agreement also provides that capital accounts will be properly maintained and that each
member must restore any deficit in the capital account upon the LLC’s liquidation.

The LLC members would like to know, before the end of the tax year, how the $240,000 liability
will be allocated for basis purposes. Using the format (1) facts, (2) issues, (3) conclusion, and
(4) law and analysis, draft a memo to the tax planning file for PA LLC that describes how the
debt will be shared between Paul and Anna for purposes of computing the adjusted basis of
each LLC interest.

57. LO.9, 10, 12, 17 The BCD Partnership plans to distribute cash of $20,000 to partner
Brad at the end of the tax year. The partnership reported a loss for the year, and Brad’s share
of the loss is $10,000. At the beginning of the tax year, Brad’s basis in his partnership interest,
including his share of partnership liabilities, was $15,000. The partnership expects to report
substantial income in future years.
a. What rules are used to calculate Brad’s ending basis in his partnership interest?
b. How much gain or loss will Brad report for the tax year?
c. Will the deduction for the $10,000 loss be suspended? Why or why not?
d. Could any planning opportunities be used to minimize any negative tax ramifications of the
distribution? Explain.

58. LO.10, 12 Jasmine Gregory is a 20% member in Sparrow Properties, LLC, which is a lessor
of residential rental property. Her share of the LLC’s losses for the current year is $100,000.
Immediately before considering the deductibility of this loss, Jasmine’s capital account (which,
in this case, corresponds to her basis excluding liabilities) reflected a balance of $50,000.
3/8
Jasmine has personally guaranteed a $10,000 debt of the LLC that is allocated to her as a
recourse debt. Her share of the LLC’s nonrecourse debt is $30,000.
This debt cannot be treated as qualified nonrecourse debt. Jasmine spends several hundred
hours a year working for Sparrow Properties.
Jasmine is also a managing member of Starling Rentals, LLC, which is engaged in long-term
(more than 30 days) equipment rental activities. (This is considered a passive activity.)
Jasmine’s share of Starling’s income is $36,000.
Jasmine’s modified adjusted gross income before considering the LLCs’ activities is $300,000.
The “active participation” rental real estate deduction is not available to Jasmine.
Determine how much of Sparrow’s $100,000 loss Jasmine can deduct on her current calendar
year return. Using the format (1) facts, (2) issues, (3) conclusion, and (4) law and analysis, draft
an internal office memo for the client’s tax file describing the loss limitations. Identify the Code
sections under which losses are suspended.

59. LO.13 Burgundy, Inc., and Violet are equal partners in the calendar year BV LLC. Burgundy
uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an
annual guaranteed payment of $100,000 for use of capital contributed by
Burgundy. BV’s taxable income (after deducting the payment to Burgundy, Inc.) is $80,000 for
2013 and $90,000 for 2014.
a. What is the amount of income from the LLC that Burgundy must report for its tax year ending
April 30, 2014?
b. What is the amount of income from the LLC that Violet must report for her tax year ending
December 31, 2014?

60. LO.13 Assume the same facts as in Problem 59. Assume that Burgundy, Inc.’s annual
guaranteed payment is increased to $120,000 starting on January 1, 2014, and the LLC’s
taxable income for 2013 and 2014 (after deducting Burgundy’s guaranteed payment) is the
same (i.e., $80,000 and $90,000, respectively). What is the amount of income from the LLC that
Burgundy, Inc., must report for its tax year ending April 30, 2014?

61. LO.13 Four GRRLs Partnership is owned by four girlfriends. Lacy holds a 40% interest;
each of the others owns 20%. Lacy sells investment property to the partnership for its fair
market value of $200,000 (Lacy’s basis is $250,000).
a. How much loss, if any, may Lacy recognize?
b. If the partnership later sells the property for $260,000, how much gain must it recognize?
c. How would your answers in (a) and (b) change if Lacy owned a 60% interest in the
partnership?
d. If Lacy owned a 60% interest and her basis in the investment property was $120,000 instead
of $250,000, how much, if any, gain would she recognize on the sale? How would the gain be
characterized?

62. LO.14 Gil’s outside basis in his interest in the GO Partnership is $100,000. In a
proportionate nonliquidating distribution, the partnership distributes to him cash of $30,000,
inventory (fair market value of $40,000, basis to the partnership of $20,000), and land (fair
market value of $90,000, basis to the partnership of $50,000). The partnership continues in
existence.
a. Does the partnership recognize any gain or loss as a result of this distribution? Explain.
b. Does Gil recognize any gain or loss as a result of this distribution? Explain.
c. Calculate Gil’s basis in the land, in the inventory, and in his partnership interest immediately
4/8
following the distribution.

63. LO.14 When Teri’s outside basis in the TMF Partnership is $80,000, the partnership
distributes to her $30,000 of cash, an account receivable (fair market value of $60,000, inside
basis to the partnership of $0), and a parcel of land (fair market value of $60,000, inside basis to
the partnership of $80,000). Teri remains a partner in the partnership, and the distribution is
proportionate to the partners.
a. Determine the recognized gain or loss to the partnership as a result of this distribution.
b. Determine the recognized gain or loss to Teri as a result of the distribution.
c. Determine Teri’s basis in the land, account receivable, and TMF Partnership after the
distribution.

64. LO.14 In each of the following independent cases in which the partnership owns no hot
assets, indicate:
• Whether the partner recognizes gain or loss.
• Whether the partnership recognizes gain or loss.
• The partner’s adjusted basis for the property distributed.
• The partner’s outside basis in the partnership after the distribution.
All partners receive proportionate distributions.
a. Kim receives $20,000 of cash in partial liquidation of her interest in the partnership.
Kim’s outside basis for her partnership interest immediately before the distribution is $3,000.
b. Kourtni receives $40,000 of cash and land with an inside basis to the partnership of $30,000
(value of $50,000) in partial liquidation of her interest. Kourtni’s outside basis for her
partnership interest immediately before the distribution is $80,000.
c. Assume the same facts as in (b), except that Kourtni’s outside basis for her partnership
interest immediately before the distribution is $60,000.
d. Klois receives $50,000 of cash and inventory with a basis of $30,000 and a fair market value
of $50,000 in partial liquidation of her partnership interest. Her basis was $90,000 before the
distribution.

65. LO.14 Sam’s basis in his partnership interest is $46,000. In a proportionate nonliquidating
distribution, Sam receives $6,000 of cash and two parcels of land, each with a basis of $30,000
to the partnership. The values of the land parcels are $40,000 and $20,000.
a. How much gain or loss, if any, must Sam recognize on the distribution?
b. What basis will Sam take in each parcel of land?

66. LO.14 At the beginning of the tax year, Melodie’s basis in the MIP LLC was $60,000,
including her $40,000 share of the LLC’s liabilities. At the end of the year, MIP distributed to
Melodie cash of $10,000 and inventory (basis of $6,000, fair market value of $10,000). In
addition, MIP repaid all of its liabilities by the end of the year.
a. If this is a proportionate nonliquidating distribution, what is the tax effect of the distribution to
Melodie and MIP? After the distribution, what is Melodie’s basis in the inventory and in her MIP
interest?
b. Would your answers to (a) change if this had been a proportionate liquidating distribution?
Explain.

67. LO.14 In each of the following independent liquidating distributions in which the partnership
also liquidates, determine the amount and character of any gain or loss to be recognized by
each partner and the basis of each asset (other than cash) received. In each case, assume that
5/8
distributions of hot assets are proportionate to the partners.
a. Landon has a partnership basis of $40,000 and receives a distribution of $50,000 in cash.
b. Mark has a partnership basis of $50,000 and receives $20,000 of cash and a capital asset
with a basis to the partnership of $25,000 and a fair market value of $40,000.
c. Neil has a partnership basis of $100,000 and receives $40,000 of cash, inventory with a basis
to the partnership of $30,000, and a capital asset with a partnership basis of $20,000. The
inventory and capital asset have fair market values of $20,000 and $30,000, respectively.
d. Oscar has a partnership basis of $40,000 and receives a distribution of $10,000 of cash and
an account receivable with a basis of $0 to the partnership (value is $15,000).

68. LO.15 RBP Partnership is a service-oriented partnership that has three equal general
partners. One of them, Barry, sells his interest to another partner, Dale, for $90,000 of cash and
the assumption of Barry’s share of partnership liabilities. On the sale date, the partnership’s
cash basis balance sheet is as follows. Assume that the capital accounts before the sale reflect
the partners’ bases in their partnership interests, excluding liabilities.
The payment exceeds the stated fair market value of the assets because of goodwill that is not
recorded on the books.
Basis FMV Basis FMV
Cash $120,000 $120,000 Note payable $ 30,000 $ 30,000
Accounts receivable –0– 90,000 Capital accounts
Capital assets 30,000 75,000 Barry 40,000 85,000
David 40,000 85,000
Dale 40,000 85,000
Total $150,000 $285,000 Total $150,000 $285,000
a. What is the total amount realized by Barry on the sale?
b. How much, if any, ordinary income must Barry recognize on the sale?
c. How much capital gain must Barry report?
d. What is Dale’s basis in the partnership interest acquired?
See Appendix E for Comprehensive Tax Return Problem—Form 1065

tax problems - questin and answer ,.,. ch 21

Attachments
tax_problems_-_questin_and_answer_,.,_._ch_21,,,,,_._._._._.docx (125.53 KB)

Preview: of xxxxxxx that xxxxxxxxx Brad’s basis xx his partnership xxxxxxxx With xxxxxxxx
xxxxxx the xxxx could be xxxxxxxxxxx without gain xxxxxxxxxxxx and xxx xxxxxx would xx fully
deductible xxxxxxxx 26, 27, xxx 34, xxx xxxxxx 21 xxxx FILE MEMORANDUMJanuary xxx
2014FROM:Beth MullinsSUBJECT: xxxxxxxxxxxxx of xxxx xxxx LLCFacts: xxxxxxx Gregory
has xxx following allocations xxx bases xx xxx LLC xxxxxxxxx for the xxxxxxx year LLC: xxxxxxx
Starling xxxxxx xxxxxx allocation($100,000)$36,000Basis xxxxxxxxx
liabilities50,000N/ARecourse liability xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx liability
allocation30,000*N/A*This xxxx cannot xx xxxxxxx as xxxxxxxxx nonrecourse debt xxxxxxx
spends significant xxxx working xxx xxxx LLC xxxxxx the year xxx modified AGI xx $300,000
xxxxxx xxxxxxxxxxx the xxxxxxx activities Issues: xxx much of xxx $100,000 xxxx xxxx Sparrow
xxxxxxxxxxx LLC can xxxxxxx deduct in xxx current xxxxxxxxxx xxxx Code xxxxxxxxx are any
6/8
xxxxxxxxxx losses suspended?Conclusion: xxxxxxx can xxxxxx xxxxxxx of xxx $100,000 loss xx
the disallowed xxxxxxxxxxxx is xxxxxxxxx xxxxx § xxxxxx An additional xxxxxxx is suspended
xxxxx theat-risk xxxxxxxxxxx xxx balance, xxxxxxxx is suspended xxxxx the passive xxxx rules
xxxx xxx The xxxxxxx $25,000 deduction xxx active participation xx a xxxxxxx xxxx
estateactivity xx not available xxxxxxx Jasmine’s modified xxx is xxx xxxx Law xxx analysis:
Under xx 704(d), Jasmine xxx deduct x xxxxxxx of xxx Sparrow loss xxxxx to her xxxxx in xxx
xxx interest, xxxxxxxxx recourse and xxxxxxxxxxx liabilities The xxxxx is xxxxxxx xxxxxxxx +
xxxxxxx + $30,000), xxx the excess xxxxxxx loss xx xxxxxxxxx The xxxxxxx of nonrecourse
xxxx cannot be xxxxxxxx in xxx xxxxxx at xxxxx because it xx not qualified xxxxxxxxxxx
indebtedness xxxxxxxxxx xx additional xxxxxxx issuspended under xxx at-risk limitation xxxxx of
xx xxx (After xxxx limitation, $60,000 xx the loss xx still xxxxxxxxx xxx testing xxxxx the passive
xxxx limitation rules xxxx activities xx xxxx LLCs xxx treated as xxxxxx activities, which, xx
definition, xxx xxxxxxx for xxxxxxxx of § xxx The Sparrow xxxx is xxxxxxxxxx xx the xxxxxx of
the$36,000 xx income from xxxxxxxx Also, xxxxxxx xxxxxxx conducts xxxxxx real estate
xxxxxxxxxxx and Jasmine xx an xxxxxx xxxxxxxxxxx owning xxxx than 10%, xxxx loss is
xxxxxxxx for xx xxxxxxxxxx $25,000 xxxxxxxxx However, none xx this additional$25,000
xxxxxxxxx is xxxxxxxxx xx Jasmine, xxxxxxx her modified xxx exceeds$150,000 (the xxx of xxx
xxxxxxxx range xxx the additional xxxxxxxxx allowance) Examples xx to xxx xx its xxxxx 30,
2014, xxx return, Burgundy, xxx , xxxx xxxxxx income xxxx BV, LLC xx $140,000 This xxxxxxxx
Burgundy’s xxxxxxxx xxxxxxxxxx payment, xxx its 50% xxxxxxxxxxxx share of xxx
partnership’s xxxxxxx xx taxable xxxxxx for the xxx year ended xxxxxxxx 31, xxxx x In xxx
December 31, xxxxx tax return, xxxxxx must xxxxxx xxxxxx from xx of$45,000 This xx her 50%
xxxxx of xxx xxxxxxxxxxxxxxx $90,000 xx taxable income xxx thetax year xxxxx December xxx
xxxx p xxxxx and Example xxxx Burgundy’s guaranteed xxxxxxx increases xx xxxxxxxx on
xxxxxxx 1, 2014, xxxxxxxxxxxx income for xxx April xxx xxxxx tax xxxx is still xxxxxxxx (as in xx
a xxxxxx xxx increase xx reflected as x guaranteed payment xx the xxxxxxxx xxx issued xxx
Burgundy for xxx partnership year xxxxx December xxx xxxxx and xxxxxxxx reports this xxxxxx
in the xxxxx 30, xxxxx xxx return x 21-35 and xxxxxxx 37a $50,000 xxxx As x xxx owner,
xxxxxxxx loss on xxx sale to xxx partnership xx xxx disallowed xxxxxxx gain The xxxxxxxxxxx
has a xxxx basis xx xxx property xx $200,000 Lacy xxxxx claim no xxxx Section xxxxxxxxxxxx
xxxxxxxx and xxxxxxxx $50,000 realized xxxx is not xxxxxxxxxx On xxx xxxxxxxxxxxxxxx later
xxxx of the xxxxxxxxx it would xxxxxxxxx a xxxx xx $10,000 xxxxxxx 267(d) permits xxx
partnership to xxxxxx any xxxxxxxxxx xxxx by xxx loss previously xxxxxxxxxx ($60,000 gain
xxxx $50,000 xxxxxxxxxx xxxxxxxxxx loss) xxxxxxx gain Lacy’s xxxxxxx gain would xx ordinary
xxxxx xx 707(b)(2) xx the investment xxxxxxxx immediately after xxx transfer xx xxx a xxxxxxx
asset of xxx GRRLs Partnership xxxxxxxx 41 xxx xxx The xxxxxxxxxxx recognizes no xxxx or
loss xx a xxxxxx xx the xxxxxxxxxxxx due to§ xxxxxx Because this xx a xxxxxxxxxxxxx
xxxxxxxxxxxxxx distribution, xxx would only xxxxxxxxx gain if xxx cash xxxxxxxx xxxxxxxx his
xxxxxxx basis He xxxxx only recognize xxxx under xxxxxxx xxxxxxxxxxx and xxxx if his
xxxxxxxx in the xxxxxxxxxxx terminated xxxxxxxxxx xx has xx recognized gain xx loss Gil xxxxx
a xxxxx xx the xxxxxxxxx equal to xxx partnership’s basis xx the xxxxxxxxxx xxxxxxxxx His
xxxxxxxx basis in xxx partnership is xxxxxxx first xx xxx $30,000 xxxxxxxxxxxxxxxxx then by xxx
$20,000 inventory xxxxxxxxxxxx He xxxxx x basis xx the landequal xx the partnership’s xxxxx
in xxx xxxxx or xxxxxxx The land xxxxxxxxxxxx reduceshis basis xx the xxxxxxxxxxx xxxxxxxx
to xx Example 49a x partnership recognizes xx gain xx xxxx on x distribution that xxxx not alter
xxx partner’s xxxxxxxxxxxxx

7/8
 GET THE ANSWER>> https://solutionlly.com/downloads/tax-problems-questin-and-answer-
ch-21

8/8
Powered by TCPDF (www.tcpdf.org)