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Tax Years a Partnership can Elect without IRS Permission

1. The BCD Partnership is being formed by three equal partners, Beta Corporation, Chi Corporation, and Delta Corporation. The partners' tax year-ends are June 30 for Beta, September 30 for Chi, and October 31 for Delta. The BCD partnership's natural business year ends on January 31.
a. What tax year(s) can the partnership elect without IRS permission?
b. What tax year(s) can the partnership elect with IRS permission?
c. How would the answer in part a and b change if Beta, Chi, and Delta own 4%, 4%, and 92%, respectively, of the partnership?

2. Liquidating Distribution. Marinda is a one-third partner in the MWH Partnership before she receives $100,000 cash as a liquidating distribution. Immediately before Marinda receives the distribution, the partnership has the following assets:

Assets Partnership's Basis FMV
Cash $100,000 $100,000
Marketable securities 50,000 90,000
Investment land 90,000 140,000
Total $240,000 $330,000

At the time of the distribution, the partnership has $30,000 of outstanding liabilities, which the three partners share equally. Marinda's basis in her partnership interest before the distribution was $80,000, which includes her share of liabilities. What are the amount and character of the gain or loss recognized by Marinda and with the MWH Partnership on the liquidating distribution?

3. Passive Income Tax. Oliver organized North Corporation 15 years ago. The corporation made an S election last year after it accumulated $60,000 of E&P as a C corporation. As of December 31 of the current year, the corporation has distributed nine of its accumulated E&P. in the current year, North reports the following results:

Dividends from domestic corporations $60,000
Rental income 100,000
Services income 50,000
Expenses related to rental income 30,000
Expenses related to services income 15,000
Other expenses 5,000
The corporation has not provided significant services nor incurred substantial costs in connection with earning the rental income. The services income is derived from the active conduct of a trade or business.
a. Is North subject to excess net passive income tax? If so, what is its tax liability:
b. What is the effect of the excess net passive income tax liability on North's pass-throughs of ordinary income and separately stated items?
c. What advice would you give North regarding its activities?

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1. The BCD Partnership is being formed by three equal partners, Beta Corporation, Chi Corporation, and Delta Corporation. The partners' tax year-ends are June 30 for Beta, September 30 for Chi, and October 31 for Delta. The BCD partnership's natural business year ends on January 31.
a. What tax year(s) can the partnership elect without IRS permission?
b. What tax year(s) can the partnership elect with IRS permission?
c. How would the answer in part a and b change if Beta, Chi, and Delta own 4%, 4%, and 92%, respectively, of the partnership?

2. Liquidating Distribution. Marinda is a one-third partner ...

Solution Summary

1. The BCD Partnership is being formed by three equal partners, Beta Corporation, Chi Corporation, and Delta Corporation. The partners' tax year-ends are June 30 for Beta, September 30 for Chi, and October 31 for Delta. The BCD partnership's natural business year ends on January 31.
a. What tax year(s) can the partnership elect without IRS permission?
b. What tax year(s) can the partnership elect with IRS permission?
c. How would the answer in part a and b change if Beta, Chi, and Delta own 4%, 4%, and 92%, respectively, of the partnership?

2. Liquidating Distribution. Marinda is a one-third partner in the MWH Partnership before she receives $100,000 cash as a liquidating distribution. Immediately before Marinda receives the distribution, the partnership has the following assets:

Assets Partnership's Basis FMV
Cash $100,000 $100,000
Marketable securities 50,000 90,000
Investment land 90,000 140,000
Total $240,000 $330,000

At the time of the distribution, the partnership has $30,000 of outstanding liabilities, which the three partners share equally. Marinda's basis in her partnership interest before the distribution was $80,000, which includes her share of liabilities. What are the amount and character of the gain or loss recognized by Marinda and with the MWH Partnership on the liquidating distribution?

3. Passive Income Tax. Oliver organized North Corporation 15 years ago. The corporation made an S election last year after it accumulated $60,000 of E&P as a C corporation. As of December 31 of the current year, the corporation has distributed nine of its accumulated E&P. in the current year, North reports the following results:

Dividends from domestic corporations $60,000
Rental income 100,000
Services income 50,000
Expenses related to rental income 30,000
Expenses related to services income 15,000
Other expenses 5,000
The corporation has not provided significant services nor incurred substantial costs in connection with earning the rental income. The services income is derived from the active conduct of a trade or business.
a. Is North subject to excess net passive income tax? If so, what is its tax liability:
b. What is the effect of the excess net passive income tax liability on North's pass-throughs of ordinary income and separately stated items?
c. What advice would you give North regarding its activities?

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