Reference no: EM133030528

Questions -

Q1. A is a partner in the ABC Partnership. The partnership leases a building from A at an annual rent of $20,000 (its fair rental value). A continues to depreciate the building.

a. How should the transaction be characterized?

b. Assume that the ABC Partnership uses an accrual method of accounting, A is a cash-method taxpayer, A and the partnership are calendar-year taxpayers, and the payment is a Section 707(a) payment. The partnership accrues the rental payment in Year 1 but does not make payment until April 1, Year 2. What result?

Q2. The ABC Partnership (a lao firm) agreement provides that A will receive a salary of $21,000 per year for his services as a lawyer without regard to the partnership's income, plus one-third of the taxable income or loss of the partnership after the deduction for A's salary. At the end of the year, before deducting A's salary, the partnership has net ordinary income of $12,000, long-term capital gain of $30,000, and short-term capital gain of $9,000. Before year-end, it pays $21,000 to A. The partnership and its partners are cash-method, calendar-year taxpayers. What are the results to A and to the partnership?

Q3. Assume alternatively in 2. above that A is to receive one-third of the net ordinary income of the partnership, as determined after taking into account all expenses except any guaranteed payment, but not less than $21,000. In addition, he is to receive one-third of the net operating losses of the partnership, as determined after taking into account all expenses except any guaranteed payments. Capital gains and losses are to be shared equally among the three partners.

a. What result if the net ordinary income of the partnership (before deducting any guaranteed payment) is $90,000?

b. What result if the net ordinary income of the partnership (before deducting any guaranteed payment) is $30,000?

c. What result if the net ordinary income of the partnership (before deducting any guaranteed payment) is $12,000?

Q4. Assume in 2. above that the partnership is an accrual-method taxpayer which postpones the $21,000 salary payment to A until Year 2. What are the results to A and to the partnership?

Q5. A and B are brother and sister. A sells a computer used in his business, with an adjusted basis of $10,000, to the ABC Partnership for $6,000. A, B, and C have equal interests in the capital, profits, and losses of the partnership. What are the results to A and the partnership?

Q6. Assume in 5. above that the partnership subsequently sells the computer to an unrelated party. What are the results to A and the partnership if the sales price is:

a. $7,000?

b. $14,000?

Q7. Assume alternatively in 5. above that D, the father of C, sells the computer to the partnership. What is the result to D? What is the result to the partnership?

Q8. A is a 90 percent partner in the AB Partnership. A sells vacant land with an adjusted basis of $50,000 to the partnership for $200,000. The partnership begins subdividing the property into lots for sale. What are the tax consequences to A? What is A held the property primarily for sale?

Q9. Assume in 8. above that A's mother, D, sells the vacant land to the partnership. What are the tax consequences to D?

Q10. AB is an equal partnership. CD is a partnership owned equally by the daughters of A and B. The AB Partnership sells property to the CD Partnership for use in its business. CD pays $10,000 for this property, which has an adjusted basis of $4,000 in AB's hands. What result?