Complete the problem in the partnership scenario that requires research and analysis as well as computation. Note: The assessments in this course are presented in a sequence and must be co
Complete the problem in the partnership scenario that requires research and analysis as well as computation.
Note: The assessments in this course are presented in a sequence and must be completed in order. Do not complete Assessment 7 until you have submitted and received faculty feedback for Assessment 6.
Introduction
There is a need for other forms of business ownership beyond sole proprietorship. Small businesses can only do so much to provide the public with an array of goods and services that match the public's insatiable appetite. To this end, large corporate entities are better equipped to provide the required goods and services. Partnerships, in all of their forms, also fill a niche, especially in the area of services, such as legal, health, and welfare.
When it comes to these business entities' responsibility for reporting their income and deductions, the tax code becomes very complicated. Their tax reporting needs may require the services of certified public accountants, who know the code thoroughly.
Corporate and partnership tax preparation require highly developed skills in research and analysis.
Note: The assessments in this course are presented in a sequence and must be completed in order. Do not complete Assessment 7 until you have received faculty feedback for Assessment 6.
Preparation
Corporate and partnership tax preparation require highly developed skills in research and analysis. Consider the following problems and research the applicable tax regulations to answer the questions.
Instructions
For this assessment, complete the following:
- Download Assessment 7 Problems [DOCX].
- Using the primary source of IRS.gov and the IRS Interactive Tax Assistant and Tax Trails, locate and interpret regulations and publications that relate to each problem.
- Record your answers to the problems in a Word document.
- Provide an explanation for each answer, including any related calculations and evidence.
- Include the following criteria from the scoring guide in your responses.
- Determine partners' recognized gains, explaining how much they gained and the rationale.
- Prepare self-employment income and basis at the end of the year.
- Determine how much gain or loss must be recognized on a distribution, ending partnership basis, and basis in equipment.
- Calculate the gain or loss on the sale of a partnership interest.
- Determine the basis of the stock in the hands of the shareholder.
- Determine taxable income on a C corporation and the book income.
- Determine the amount of taxable dividend, nontaxable distribution, and capital gain.
- Submit the Word document containing your answers to the problem and the explanations for your answers.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 3: Assess types of non-individual entities subject to federal taxation.
- Determine partners' recognized gains, explaining how much they gained and the rationale.
- Prepare self-employment income and basis at the end of the year.
- Determine how much gain or loss must be recognized on a distribution, ending partnership basis, and basis in equipment.
- Calculate the gain or loss on the sale of a partnership interest.
- Determine the basis of the stock in the hands of the shareholder.
- Determine taxable income on a C corporation and the book income.
- Determine the amount of taxable dividend, nontaxable distribution, and capital gain.
Assessment 7 Problems
In a Word document, provide complete answers with explanations to the problems below.
Problem 1
Darrel, Sissy, and Carol form a partnership. Darrel and Sissy give equipment and a building, respectively. Carol agrees to perform all of the accounting and office work in exchange for a 10% interest.
FMV Basis Partnership %
Darrel’s equipment $200,000 $100,000 60%
Sissy’s building $100,000 $50,000 30%
Carol’s services $0 $0 10%
a. Do any of the partners recognize any gain? If so, how much and why?
b. What is the basis for each partner in his or her partnership interest?
c. What is the basis for the partnership of each asset?
Problem 2
Wayne has a beginning basis in a partnership of $46,000. His share of income and expense from the partnership consists of the following amounts:
Ordinary income $86,000
Guaranteed payment 24,000
Long-term capital gain 31,000
§1231 gain 8,600
Charitable contributions 4,000
§179 expense 36,000
Cash distribution 12,000
a. What is Wayne’s self-employment income?
b. Calculate Wayne’s basis at the end of the year.
Problem 3
Karen has a basis in her partnership interest of $24,000 when she receives a distribution from the partnership of $12,000 cash, and equipment with a basis of $16,000 ($24,000 FMV).
a. How much gain or loss must Karen recognize on the distribution?
b. What is Karen’s ending partnership basis?
c. What is Karen’s basis in the equipment?
Problem 4
Carrie purchased a 40% partnership interest for $86,000 in February 2019. Her share of partnership income in 2019 was $44,000, in 2020 was $50,000, and in 2021 was $24,000. She made no additional contributions to, or withdrawals from, the partnership. On December 18, 2021, Carrie sold her partnership interest for $206,000. What is her gain or loss on the sale of her partnership interest?
Problem 5
Determine the basis of stock in the hands of the shareholder in each of the following instances. Assume that the 80% rule is met in all cases.
a. Contribution of property with a basis of $2,000 and an FMV of $2,800.
b. Contribution of property with a basis of $6,000 and an FMV of $7,600. The stockholder also received $1,000 cash from the corporation as part of the stock transaction.
c. Contribution of property with a basis of $16,400 and an FMV of $25,000. The stockholder also received property with an FMV of $3,400 from the corporation as part of the stock transaction.
d. Contribution of a building with an FMV of $400,000, a mortgage (assumed by the corporation) of $200,000, and a basis of $250,000.
e. Contribution of a building with an FMV of $3,400,000, a mortgage (assumed by the corporation) of $2,000,000, and a basis of $1,270,000.
Problem 6
Determine taxable income in each of the following instances. Assume that the corporation is a C corporation and that book income is before any income tax expense.
a. Book income of $100,000 including capital gains of $4,000, a charitable contribution of $2,000, and travel and entertainment expenses of $6,000.
b. Book income of $184,000 including capital losses of $6,000, a charitable contribution of $24,000, and travel and entertainment expenses of $6,000.
c. Book income of $152,000 including municipal bond interest of $4,000, a charitable contribution of $10,000, and dividends of $6,000 from a 10% owned domestic corporation. The corporation also has a $16,000 charitable contribution carryover.
d. Book income of $258,000 including municipal bond interest of $4,000, a charitable contribution of $10,000, and dividends of $14,000 from a 70% owned domestic corporation. The corporation has a capital loss carryover of $12,000 and a capital gain of $5,000 in the current year.
Problem 7
Determine the amount of (1) taxable dividend, (2) nontaxable distribution, and (3) capital gain, for the distributions made in each of the following cases:
a. Corporate E&P of $20,000, shareholder stock basis of $24,000, distribution of $12,000.
b. Corporate E&P of $15,000, shareholder stock basis of $14,000, distribution of $13,000.
c. Corporate E&P of $32,000, shareholder stock basis of $10,000, distribution of $34,000.
d. Corporate E&P of $28,000, shareholder stock basis of $22,000, distribution of $52,000.
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