Victoria just received a Schedule K-1 from JKL Partnership that included a ($20,000) ordinary business loss allocation. Her tax basis in JKL at the beginning of JKL's most recent tax year was $10,000. Victoria noted that the Schedule K-1 correctly reflects the $1,000 cash contribution that she made to JKL during the year, and a comparison between the most recent and prior year information shows that her share of JKL Partnership recourse debt increased from $0 to $8,000 during the year. Assume Victoria is a material participant in JKL Partnership, and she received $5,000 of passive income from another, unrelated investment during the same year she received the loss allocation from JKL.

a) Briefly discuss how the U.S. Internal Revenue Code treats partnerships as entities separate from their partners (entity approach), but also treats partnerships simply as an aggregation of the partners’ separate interests in the assets and liabilities of the partnership (aggregate approach). Provide an example of each approach.

b) How much of the $20,000 loss from JKL can Victoria deduct currently, and how much of the loss is suspended because of the tax-basis limitation, the at-risk limitation, the passive activity loss limitation, and the excess business loss limitation (the four hurdles)? Clearly show any related calculations. How do your answers change if Victoria is not a material participant in the JKL Partnership?

c) Assume Victoria is a calendar year-end individual with a 30% profits and capital interest in the JKL Partnership; however, the taxable year-end for JKL is March 31. Show your calculation of how many months of deferral Victoria receives in this situation. In general, explain how Victoria did or did not benefit from the deferral during the most recent tax year. Identify and explain three different ways that JKL Partnership could have a taxable year-end of March 31 even though Victoria is considered to be a principal partner. When is the due date for the JKL partnership to file its federal income tax return?

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Basis Limits Generally your deductions cannot exceed your basis Basis is more or less the ... View the full answer