Question

In: Accounting

Eve and Tom own 40% and 60%, respectively, of the ET Partnership, which manufactures clocks. The...

Eve and Tom own 40% and 60%, respectively, of the ET Partnership, which manufactures clocks. The partnership is a limited partnership, and Eve is the only general partner. She works full-time in the business. Tom essentially is an investor in the firm and works full-time at another job. Tom has no other income except his salary from his full-time employer. During the current year, the partnership reports the following gain and loss:

Ordinary loss 140,000

Long-term capital gain 20,000

Before including the current year’s gain and loss, Eve and Tom had $46,000 and $75,000 bases for their partnership interests, respectively. The partnership has no nonrecourse liabilities. Tom has no further obligation to make any additional investment in the partnership.

a. What gain or loss should each partner report on his or her individual tax return?

b. If the partnership borrowed an additional $100,000 of recourse liabilities, how would your answer to Part a change?

Expert Solution

Eve and Tom Had made a limited partnership with an stake of 40% and 60% respectively ....

Business Loss = $ 140000

Capita Gain = $ 20000

Therefore total Loss of the business will be $ 120000.

Individual Earning of the partners......

Eve = $ 46000 (Interest income)

Tom = $ 75000 (Interest Income)

A) Individual Income on their hands...

i) Eve income total Income is as under :--

Interest Income = $ 46000

Business Loss = $ 48000 (40% of $120000)

- Therefore total Loss of Eve in her Individual Tax return is $ 2000

ii) Tom income total income is as under :-

Interest Income = $75000

Business Loss = $72000 (60% $120000)

- Therefore total Gain of Tom in his individual Tax return is $ 3000.

B) If the partnership borrowed an additional $100,000 of recourse liabilities...

It might increase the liability of loss risk, as actually we are in loss making firm and after borrowing Loan a fixed amount of interest should be paid annualy which may increase the margin of loss!!!!

ekkarill92 answered 2 years ago

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