Advanced Tax Strategies for LLCs and Partnerships

SOLUTIONS

CHAPTER 1

Solutions to Knowledge Check Questions

1.    

a.     Correct. J's capital account is reduced by her allocable share of partnership losses and expenses, whether or not she can deduct them.

b.     Incorrect. Even though J cannot deduct her share of the partnership's rental real estate loss, it still reduces her capital balance

c.     Incorrect. The ($800) share of partnership nondeductible expenses must be subtracted from J's capital balance.

d.     Incorrect. J's capital account is reduced by her allocable share of charitable contributions and nondeductible expenses.

2.    

a.     Incorrect. The adjustment to L's capital account is based on the value of the property distributed, rather than on the pre-distribution balance in that account.

b.     Correct. L's capital account must be reduced by the fair market value of the property distributed to her.

c.     Incorrect. This is the tax basis of the distributed property.

d.     Incorrect. This is the book gain that is split 50/50 and added to capital accounts. In a nonliquidating distribution, L's capital account must be reduced by the fair market value of the property distributed to her.

3.    

a.     Incorrect. Claire's capital account must be adjusted to reflect her share of partnership income and distributions received since inception of the partnership.

b.     Correct. Under Section 704(b), each partner is entitled to receive the amount in his or her book capital account upon liquidation of the partnership ...