Partnership Taxation Paper 4

1

On January 1, 2013, Kane was a 25% equal partner in Maze General Partnership, which had partnership liabilities of $300,000. On January 2, 2013, a new partner was admitted and Kane’s interest was reduced to 20%. On April 1, 2013, Maze repaid a $100,000 general partnership loan. Ignoring any income, loss, or distributions for 2013, what was the net effect of the two transactions for Kane’s tax basis in Maze partnership interest?






2

Lee inherited a partnership interest from Dale during 2013. The adjusted basis of Dale’s partnership interest was $50,000, and its fair market value on the date of Dale’s death (the estate valuation date) was $70,000. What was Lee’s original basis for the partnership interest?






3

Hall and Haig are equal partners in the firm of Arosa Associates. On January 1, 2012, each partner’s adjusted basis in Arosa was $40,000. During 2012 Arosa borrowed $60,000, for which Hall and Haig are personally liable. Arosa sustained an operating loss of $10,000 for the year ended December 31, 2012. The basis of each partner’s interest in Arosa at December 31, 2012, was






4

Doris and Lydia are sisters and also are equal partners in the capital and profits of Agee & Nolan. The following information pertains to 300 shares of Mast Corp. stock sold by Lydia to Agee & Nolan.
Year of purchase 2006
Year of sale 2013
Basis (cost) $9,000
Sales price (equal to fair market value) $4,000
The amount of long-term capital loss that Lydia recognized in 2013 on the sale of this stock was






5

In March 2013, Lou Cole bought 100 shares of a listed stock for $10,000. In May 2013, Cole sold this stock for its fair market value of $16,000 to the partnership of Rook, Cole & Clive. Cole owned a one-third interest in this partnership. In Cole’s 2013 tax return, what amount should be reported as short-term capital gain as a result of this transaction?






6

Kay Shea owns a 55% interest in the capital and profits of Dexter Communications, a partnership. In 2013, Kay sold an oriental lamp to Dexter for $5,000. Kay bought this lamp in 2007 for her personal use at a cost of $1,000 and had used the lamp continuously in her home until the lamp was sold to Dexter. Dexter purchased the lamp as an investment. What is Kay’s reportable gain in 2013 on the sale of the lamp to Dexter?






7

Gladys Peel owns a 50% interest in the capital and profits of the partnership of Peel and Poe. On July 1, 2012, Peel bought land the partnership had used in its business for its fair market value of $10,000. The partnership had acquired the land five years ago for $16,000. For the year ended December 31, 2012, the partnership’s net income was $94,000 after recording the $6,000 loss on the sale of land. Peel’s distributive share of ordinary income from the partnership for 2012 was






8

Under Section 444 of the Internal Revenue Code, certain partnerships can elect to use a tax year different from their required tax year. One of the conditions for eligibility to make a Section 444 election is that the partnership must






9

Which one of the following statements regarding a partnership’s tax year is correct?






10

Without obtaining prior approval from the IRS, a newly formed partnership may adopt






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