Reference no: EM132857090

Question - A, B and C decide to form a partnership in 2020. Each will contribute $50,000 cash in return for a one-third interest in capital and profits. A and B currently use the calendar year while C uses a fiscal year ending on June 30.

To prepare to form the partnership, the three partners hired a lawyer on June 10, 2020, to write the partnership agreement for $9,000. On August 15, they paid $1,900 to an accountant to help them prepare financial materials for their offering. (They are planning to sell additional partnership interests to raise the needed capital.) On September 20, 2020, they purchase machinery to be used in their business for $6,000. (For the purposes of the remainder of the problem, ignore any cost recovery implications of the machinery in calculating the income of the partnership.) They actually began operations on October 1.

At the end of the year, they had the following.

Sales $75,000

Dividends 40,000 Sec. 1231 gains 10,000 Sec. 1245 gains 5,000

Long-term capital losses (4,000)

Organizational Expenses (see above)

Required -

What tax year will the partnership use?

Identify which of the items from operations are separately stated.

How much can the partnership deduct for organizational expenses in the first year? In its second year?

What would be the basis of each partner at the year end and what would be the effect on the return?

Assume that the partnership provides consulting services as its principal business and that the partners each have taxable income below the income thresholds for the Qualified Business Income Deduction. What will be the deduction each partner gets for the Qualified Business Income Deduction?