PLLCBK_10th_Ch 6_Problems.doc - Practical Guide to...

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Practical Guide to Partnerships and LLCs—Instructor’s Guide Problems Chapter 6 – Allocation of Partnership Income Among the Partners: The Substantial Economic Effect Requirement Reading: Paragraphs 601-605. 1. What requirements must be met in order for an allocation of income or loss to have economic effect? 2. A, B, and C form the equal ABC partnership. Capital accounts are properly
maintained. Depreciation is allocated completely to C, but any distributions in liquidation will be made equally to each partner, although partners are required to restore deficit capital accounts upon liquidation. Does the allocation of depreciation have economic effect?
3. A, B, and C form the equal ABC partnership. Capital accounts are properly maintained. Depreciation is allocated completely to C, and any distributions in liquidation will be made according to the capital accounts of each partner. However, under local law any excess of liabilities over assets at the time of liquidation must be made up equally by each partner. Does the allocation of depreciation have economic effect?
4. A, B, and C form the equal ABC partnership. Depreciation is allocated completely to C, and any distributions in liquidation will be made according to the capital accounts of each partner. Partners are required to restore deficit capital accounts upon liquidation. The capital accounts of each partner are kept on a tax basis, so contributions and distributions of property are recorded in the capital accounts at the properties’ bases. Does the allocation of depreciation have economic effect?
5. A, B, and C form the equal ABC partnership by contributing $100,000 each, and purchasing some equipment for $300,000. The equipment has a depreciable life of six years, and all depreciation (straight line) is allocated to A. Capital accounts are properly maintained. Any distributions in liquidation will be made according to the capital accounts of each partner. Partners are required to restore deficit capital accounts upon liquidation. Income aside from depreciation is $60,000

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