Question 1

A taxpayer is a 40% partner in a partnership. The partnership has $100,000 of recourse liabilities and $50,000 of nonrecourse liabilities. The taxpayer bears the economic risk of loss for the recourse liabilities. What is the taxpayer's share of liabilities for basis purposes?

Accepted Answer

Recourse Debt: Allocated to partners who bear risk (usually via loss ratio). Nonrecourse Debt: Allocated by profit ratio. 40% of $100k + 40% of $50k = $40k + $20k = $60k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Allocating recourse debt by profit ratio (it's loss ratio/risk).

A taxpayer is a 40% partner in a partnership. The partnership has $100,000 of recourse liabilities and $50,000 of nonrecourse liabilities. The taxpayer bears the economic risk of loss for the recourse liabilities. What is the taxpayer's share of liabilities for basis purposes?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 4

More questions from this exam