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1. What are the consequences to the partnership and the partners when contributed property is subject to indebtedness?1. Jessica and Beatrice form a partnership and plan to share profits and

1.      What are the consequences to the partnership and the partners when contributed property is subject to indebtedness?

1.      Jessica and Beatrice form a partnership and plan to share profits and losses on a 60/40 basis.  Their partnership agreement contains no specific provision that governs how distributive shares of each particular income item will be determined.  Explain how Jessica will compute her distributive share. 

1.      Assume that the ABC partnership agreement requires that the partnership liquidate the interest of any deceased or retiring partner.  ABC is a service partnership.  Describe the income tax consequences to the retiring partner and to the remaining partners of

a.      Payments of the purchase price to the retiring partner for his or her interest in partnership property

b.      Additional payments that are part of the retiring partner’s distributive share.

2.     

3.      Explain how limited partnerships and their partners are taxed.

4.     

5.      What guidelines are used to test the reality of a partnership arrangement involving acquisition of a partnership interest by one family member from another when

a.      Capital is a material income-producing factor?

b.      Capital is not a material income producing factor?

26. It has been suggested by a financial adviser the Price Corporation purchase $500,000 of key person cash value life insurance eon the life of Preston Yukon, the firm’s skilled operational vice president.  For many years, earnings of the corporation have been substantial, but no dividends have ever been declared or paid.  The corporation now has substantial cash it does not need for current operations or anticipated growth and the firm’s CPA is fearful of an accumulated-earning tax problem.  Will the proposed purchase of cash value life insurance by Price Corporation aggravate its potential problem? Explain

Each Question needs to have the Internal Revenue Code Cited. 

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