Advanced Tax Strategies for LLCs and Partnerships

Solutions

Chapter 1

Knowledge check solutions

1. 1. Correct. J’s capital account is reduced by her allocable share of partnership losses and expenses, whether or not she can deduct them.
   2. Incorrect. Even though J cannot deduct her share of the partnership’s rental real estate loss, it still reduces her capital balance.
   3. Incorrect. The ($800) share of partnership nondeductible expenses must be subtracted from J’s capital balance.
   4. Incorrect. J’s capital account is reduced by her allocable share of charitable contributions and nondeductible expenses.
2. 1. Incorrect. Claire’s capital account must be adjusted to reflect her share of partnership income and distributions received since inception of the partnership.
   2. 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 or of their interest therein.
   3. Incorrect. This figure omits Claire’s original contribution to partnership capital.
   4. Incorrect. Claire will be entitled to receive the balance in her book capital account upon liquidation of the partnership. Her book capital account must be reduced by the $30,000 of distributions made to Claire.
3. 1. Incorrect. S will be entitled to receive at least the balance in her capital account.
   2. Incorrect. Under a balancing provision, none of the loss on sale of the lease will be allocated to S.
   3. Incorrect. The partnership recognizes a loss on sale of the leasehold. It would have to recognize a gain for S to receive more ...