Partnership Taxation Paper 3

1

Dale’s distributive share of income from the calendar-year partnership of Dale & Eck was $50,000 in 2012. On December 15, 2012, Dale, who is a cash-basis taxpayer, received a $27,000 distribution of the partnership’s 2012 income, with the $23,000 balance paid to Dale in February 2013. In addition, Dale received a $10,000 interest-free loan from the partnership in 2012. This $10,000 is to be offset against Dale’s share of 2013 partnership income. What total amount of partnership income is taxable to Dale in 2012?






2

At December 31, 2011, Alan and Baker were equal partners in a partnership with net assets having a tax basis and fair market value of $100,000. On January 2, 2012, Carr contributed securities with a fair market value of $50,000 (purchased in 2010 at a cost of $35,000) to become an equal partner in the new firm of Alan, Baker, and Carr. The securities were sold on December 15, 2012, for $47,000. How much of the partnership’s capital gain from the sale of these securities should be allocated to Carr?






3

Gilroy, a calendar-year taxpayer, is a partner in the firm of Adams and Company which has a fiscal year ending June 30. The partnership agreement provides for Gilroy to receive 25% of the ordinary income of the partnership. Gilroy also receives a guaranteed payment of $1,000 monthly which is deductible by the partnership. The partnership reported ordinary income of $88,000 for the year ended June 30, 2012, and $132,000 for the year ended June 30, 2013. How much should Gilroy report on his 2012 return as total income from the partnership?






4

On December 31, 2011, Edward Baker gave his son, Allan, a gift of a 50% interest in a partnership in which capital is a material income-producing factor. For the year ended December 31, 2012, the partnership’s ordinary income was $100,000. Edward and Allan were the only partners in 2012. There were no guaranteed payments to partners. Edward’s services performed for the partnership were worth a reasonable compensation of $40,000 for 2012. Allan has never performed any services for the partnership. What is Allan’s distributive share of partnership income for 2012?






5

Flagg and Miles are each 50% partners in Decor Partnership. Each partner had a $200,000 tax basis in the partnership on January 1, 2012. Decor’s 2012 net business income before guaranteed payments was $45,000. During 2012, Decor made a $7,500 guaranteed payment to Miles for deductible services rendered. What total amount from Decor is includible in Flagg’s 2012 tax return?






6

Flagg and Miles are each 50% partners in Decor Partnership. Each partner had a $200,000 tax basis in the partnership on January 1, 2012. Decor’s 2012 net business income before guaranteed payments was $45,000. During 2012, Decor made a $7,500 guaranteed payment to Miles for deductible services rendered. What is Miles’s tax basis in Decor on December 31, 2012?






7

Peters has a one-third interest in the Spano Partnership. During 2012, Peters received a $16,000 guaranteed payment, which was deductible by the partnership, for services rendered to Spano. Spano reported a 2012 operating loss of $70,000 before the guaranteed payment. What is (are) the net effect(s) of the guaranteed payment?
I. The guaranteed payment decreases Peters’ tax basis in Spano by $16,000.
II. The guaranteed payment increases Peters’ ordinary income by $16,000.






8

Dean is a 25% partner in Target Partnership. Dean’s tax basis in Target on January 1, 2012, was $20,000. At the end of 2012, Dean received a nonliquidating cash distribution of $8,000 from Target. Target’s 2012 accounts recorded the following items:
Municipal bond interest income $12,000
Ordinary income 40,000
What was Dean’s tax basis in Target on December 31, 2012?






9

On January 4, 2012, Smith and White contributed $4,000 and $6,000 in cash, respectively, and formed the Macro General Partnership. The partnership agreement allocated profits and losses 40% to Smith and 60% to White. In 2012, Macro purchased property from an unrelated seller for $10,000 cash and a $40,000 mortgage note that was the general liability of the partnership. Macro’s liability






10

Gray is a 50% partner in Fabco Partnership. Gray’s tax basis in Fabco on January 1, 2012, was $5,000. Fabco made no distributions to the partners during 2012, and recorded the following:
Ordinary income $20,000
Tax exempt income 8,000
Portfolio income 4,000
What is Gray’s tax basis in Fabco on December 31, 2012?






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