Part A: Your determination of each partner’s basis and holding period in their partnership interest after formation. Part B: The accounting period the partnership will be required to use. Part C: The calculation of the basis and return effects for Miller Corporation for the income and expenses of the partnership during the year. Be sure to distinguish the ordinary income/expenses from the separately stated items. Part D: Your calculation of Anna Smith’s Sec. 199A deduction on her individual tax return, assuming that she is single, and has gross income of $250,000 before considering any of the transactions involving the partnership. Don’t forget that the partnership manufactures exercise equipment for sale in the U.S
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In January of 2021, three taxpayers decided to form a partnership. The partnership manufactures exercise equipment for sale in the U.S.
The first partner, Miller Corporation (with a tax year ending on April 30), contributed machinery used in its business. The machinery (purchased in 2018) had a basis of $30,000 and a fair market value of $55,000. The machinery was subject to a non-recourse liability that the partnership agreed to assume. In return, Miller Corporation received a 45% interest in the capital and profits of the partnership.
The second partner, David Jones (a cash basis taxpayer with a tax year ending on September 30), contributed
The final partner, Anna Smith (a cash basis taxpayer who used the calendar year), contributed a car used in her business in return for a 20% interest in the capital and profits of the partnership. The car was originally purchased for $45,000 in 2017 and had a basis of $25,000 when Anna transferred it to the partnership.
After forming, the partnership began to prepare for starting its operations. The partnership began business on June 1, 2021. In preparing to begin business, the partnership incurred qualified organizational expenses of $51,800.
In addition to the organizational expenses, the partnership had the following items of income/expense during the year:
At the end of the year, they had the following.
| Net Sales | $150,000* |
|---|---|
| Dividends | 40,000 |
| Sec. 1231 gains | 40,000 |
| Sec. 1245 gains | 5,000 |
| Long-term capital losses | (20,000) |
*Assume that the net sales includes W-2 wages of $40,000 paid to employees as one of the ordinary expenses offsetting the sales.
Prepare the tax workpapers, including an Excel document, in which you write up the following:
- Part A: Your determination of each partner’s basis and holding period in their partnership interest after formation.
- Part B: The accounting period the partnership will be required to use.
- Part C: The calculation of the basis and return effects for Miller Corporation for the income and expenses of the partnership during the year. Be sure to distinguish the ordinary income/expenses from the separately stated items.
- Part D: Your calculation of Anna Smith’s Sec. 199A deduction on her individual tax return, assuming that she is single, and has gross income of $250,000 before considering any of the transactions involving the partnership. Don’t forget that the partnership manufactures exercise equipment for sale in the U.S.
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