{"id":202638,"date":"2025-03-17T18:39:57","date_gmt":"2025-03-17T18:39:57","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=202638"},"modified":"2025-03-17T18:40:13","modified_gmt":"2025-03-17T18:40:13","slug":"the-clifton-partnership-a-calendar-year-partnership-incurs-and-pays-the-following-costs-during-20x1-its-first-taxable-year","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/17\/the-clifton-partnership-a-calendar-year-partnership-incurs-and-pays-the-following-costs-during-20x1-its-first-taxable-year\/","title":{"rendered":"The Clifton partnership, a calendar year partnership, incurs and pays the following costs during 20X1, its first taxable year:"},"content":{"rendered":"\n

The Clifton partnership, a calendar year partnership, incurs and pays the following costs during 20X1, its first taxable year:<\/p>\n\n\n\n

Item<\/th>Date Paid<\/th><\/tr>
Legal fees for drafting the partnership agreement<\/td>$14,000<\/td>May 19, 20X1<\/td><\/tr>
Accounting fees to set up the books<\/td>$9,000<\/td>June 22, 20X1<\/td><\/tr>
Brokerage commissions to sell limited partnership interests<\/td>$12,000<\/td>July 13, 20X1<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

The Clifton partnership begins business on September 1, 20X1. If the Clifton partnership makes a proper election, what is the maximum total deduction which it may take for the above costs on its 20X1 partnership return?<\/p>\n\n\n\n

    \n
  • a. $778<\/li>\n\n\n\n
  • b. $5,400<\/li>\n\n\n\n
  • c. $511<\/li>\n\n\n\n
  • d. $5,667<\/li>\n<\/ul>\n\n\n\n

    The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n

    The correct answer is: b. $5,400<\/strong><\/p>\n\n\n\n

    Explanation:<\/h3>\n\n\n\n

    The costs incurred by the Clifton Partnership fall into different categories for tax treatment purposes under IRC Section 709<\/strong> (organizational and syndication costs) and IRC Section 195<\/strong> (start-up costs).<\/p>\n\n\n\n

      \n
    1. Legal fees for drafting the partnership agreement ($14,000):<\/strong>\n
        \n
      • This qualifies as an organizational cost<\/strong> because it is directly related to forming the partnership.<\/li>\n\n\n\n
      • Under IRC Section 709<\/strong>, a partnership may deduct up to $5,000<\/strong> of organizational costs in the first year, phased out dollar-for-dollar<\/strong> when total organizational expenses exceed $50,000.<\/li>\n\n\n\n
      • The remaining balance must be amortized over 180 months<\/strong> (15 years).<\/li>\n<\/ul>\n<\/li>\n\n\n\n
      • Accounting fees to set up the books ($9,000):<\/strong>\n
          \n
        • This also qualifies as an organizational cost<\/strong> and is grouped with the legal fees for the purpose of the $5,000 immediate deduction.<\/li>\n\n\n\n
        • Since the total organizational costs are $14,000 + $9,000 = $23,000, the partnership can deduct $5,000 immediately<\/strong>, and the remaining $18,000 is amortized over 180 months<\/strong>.<\/li>\n\n\n\n
        • Monthly amortization: $18,000 \u00f7 180 = $100 per month.<\/li>\n\n\n\n
        • Since the partnership starts business in September<\/strong>, it can deduct 4 months (September\u2013December)<\/strong> = $400<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
        • Brokerage commissions for selling limited partnership interests ($12,000):<\/strong>\n
            \n
          • These are syndication costs<\/strong>, which must be capitalized<\/strong> and cannot be deducted or amortized<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n\n\n

            Total Deduction for 20X1:<\/h3>\n\n\n\n
              \n
            • Immediate deduction: $5,000<\/strong><\/li>\n\n\n\n
            • Amortization (4 months of $100\/month): $400<\/strong><\/li>\n\n\n\n
            • Total deduction = $5,400<\/strong><\/li>\n<\/ul>\n\n\n\n

              Thus, the correct answer is b. $5,400<\/strong>.<\/p>\n\n\n\n

              I’ve provided the correct answer along with an explanation, and here’s the generated image of a professional office setting with financial documents and calculations. Let me know if you need any modifications!<\/p>\n\n\n\n

              \"\"<\/figure>\n","protected":false},"excerpt":{"rendered":"

              The Clifton partnership, a calendar year partnership, incurs and pays the following costs during 20X1, its first taxable year: Item Date Paid Legal fees for drafting the partnership agreement $14,000 May 19, 20X1 Accounting fees to set up the books $9,000 June 22, 20X1 Brokerage commissions to sell limited partnership interests $12,000 July 13, 20X1 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-202638","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/202638","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=202638"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/202638\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=202638"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=202638"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=202638"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}