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(1) Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Also, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.
(2) Jim and Joan form a partnership by each making contributions of $60,000 cash to partnership capital. The partnership purchases an asset for $300,000, using the cash and financing the with a $180,000 recourse note. Jim allocated 60% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses. After that date, the profits and losses are shared equally between the two partners. The partners expect the partnership to have losses for the first three years of operations and profits thereafter. How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?
(2) Jim and Joan form a partnership by each making contributions of $60,000 cash to partnership capital. The partnership purchases an asset for $300,000, using the cash and financing the with a $180,000 recourse note. Jim allocated 60% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses. After that date, the profits and losses are shared equally between the two partners. The partners expect the partnership to have losses for the first three years of operations and profits thereafter. How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?
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