Chapter 20 PARTNERSHIP

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Kennesaw State University *

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Accounting

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Apr 27, 2024

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Taylor Partnership is a general partnership with 3 equal partners. In the current year, Taylor generated taxable business income of $3,000 and made $0 distributions to its partners. How will the $3,000 be taxed for Federal income tax purposes? No tax at the partnership level and all $3,000 taxed at the partner level. Reason: Partnerships are taxed as a flow-through and thus the income is taxed at the partner level whether distributions are made or not. A partner contributes property or services in exchange for the general ownership interest called a(n) PARTNERSHIP INTEREST Realized gains and losses that result from the exchange of contirbuted property for a partnership interest are: are fully or partially deferred for tax purposes Bobby contributes land with a value of $10,000 and an adjusted basis of $2,000 to the Harwell Partnership. What are Bobby's and Harwell's recognized gains/losses? Bobby's gain = $0; Harwell's gain = $0 Reason:

Generally, partners and partnerships do NOT recognize gain or loss on the contribution of property to a partnership. Which of the following is NOT a flow-through entity? C Corporation A partnership's basis in its own assets is known as the INSIDE BASIS OUTSIDE BASIS tax basis in a partnership interest Partnerships are taxed under: both the entity and aggregate approach When a partner contributes property subject to a debt to a partnership, the debt relief the partner experiences is treated as: a decrease in the partner's outside basis Reason: Partners that enjoy debt relief by contributing property subject to debt to a partnership, treat the debt relief as a cash distribution which lowers their outside basis. A partnership interest represents a(n): bundle of rights granted to partners through a partnership agreement A partner's interest in a partnership interest is treated as a(n): capital asset The deferral of realized gains or losses on property contributed to partnerships allows entrepreneurs the option to organize their businesses without having to pay taxes. TRUE

Duncan has land that he purchased 5 years ago and equipment that he purchased this month. He contributes both to the DoNut Partnership in exchange for a partnership interest. What is DoNut's holding period for each asset? Long-term for the land and short-term for the equipment; the holding period for both assets carries over from the partner. Which of the following are recognized by the partner on the contribution of property to a partnership by a partner? Neither built-in gains nor losses Reason: Partners do not generally recognize gain or loss when they contribute property to a partnership. Entities taxed as partnerships track the equity of their owners using a(n) CAPITAL ACCOUNT A partner's tax basis in his or her partnership interest is increased by the: tax basis of the property contributed Eddie contributed $60,000 cash to Howling Partnership in exchange for a 50% partnership interest. Howling immediately borrowed $50,000 of debt that Eddie and the other partners had to guarantee personally based on their initial ownership interests. What is Eddie's tax basis in Howling? Reason: Eddie adds his $60,000 contribution of cash + $25,000 (50% of the partnership's debt that he is personally liable for) = $85,000.  Contribution of property Outside basis = basis of contributed property - debt relief + debt allocated + gain recognized  Contribution of services

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