AC2520: Module 5 Other Tax Considerations for Corporates Lab 5.2

AC2520: Module 5 Other Tax Considerations for Corporates

Lab 5.2

Partnership and Taxation

1

Rick has a $50,000 basis in the RKS General Partnership on January 1 of the current year, and he owns no

other investments. He has a 20% capital interest, a 30% profits interest, and a 40% loss interest in the

partnership. Rick does not work in the partnership. The partnership’s only liability is a $100,000 nonrecourse

debt borrowed several years ago, which remains outstanding at year-end. Rick’s share of the liability is

based on his profits interest and is included in his $50,000 partnership basis. Rick and the partnership each

report on a calendar year basis.

Income for the entire partnership during the current year is:

Ordinary loss $440,000

Long-term capital gain 100,000

Sec. 1231 gain 150,000

Answer the following questions:

1. What is Rick’s distributive share of income, gain, and loss for the current year?

2. What partnership income, gain, and loss should Rick report on his tax return for the current year?

3. What is Rick’s basis in his partnership interest on the first day of the next year?

Submission Requirements:

 Submit your response in a Microsoft Word document.

 Your response should show the calculations involved.

 The submission should use:

o Font: Arial; 12-point

o Line spacing: Double

Evaluation Criteria:

The lab rubric will be used to grade this assessment.