Chapter 10

Question 50

Below is the information from question49that is needed to complete(50):

Suzy contributed assets valued at $360,000 (the basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership). Anna contributed land and a building valued at $640,000 (the 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

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 a 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?

**(question 50) Assume the same facts as in Problem 49, and assume that Suz-Anna prepares the capital account roll forward 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. Assume that all partnership debits are shared proportionately. At the end of the tax year, what are Suzy’s basis and amount at risk in her partnership interest?

Chapter 11

Question 48

Below is the information from question47that is needed to complete(48):

BDD 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 cash and the assumption of Barry’s share of partnership liabilities. Immediately before the sale, the partnership’s cash basis balance sheet is as shown below. 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 $150,000 $285,000

 

**(question 48)Assume in Problem 47 that Barry’s partnership interest is not sold to another partner. Instead, the partnership makes a liquidating distribution of $90,000 cash to Barry, and the remaining partners assume his share of the liabilities. How much gain or loss must Barry recognize? How is it characterized? Assume that Barry is a general partner, there is no provision for the payment for goodwill in the partnership agreement, and capital is not a material income-producing factor to the partnership.