The MOP Partnership Is Involved in Construction Activities ​
During the Year, the Partnership Has an Operating Loss

question 63

Essay

The MOP Partnership is involved in construction activities. Patricia has an adjusted basis for her partnership interest on January 1 of the current year of $600,000, consisting of the following: $\begin{array}{lr}\text { Capital account } & \$ 350,000 \\\text { Share of partnership recourse debt } & 50,000 \\\text { Share of partnership nonrecourse debt } & 200,000 \\&\$600,000\end{array}$ ​
During the year, the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patricia. Partnership liabilities were the same at the end of the tax year, and the nonrecourse debt is not "qualified nonrecourse debt." If she owns a 60% share of partnership profits, capital, and losses, and is an active ("material") participant in the partnership, how much of her share of the operating loss can Patricia deduct? What Code provisions could cause a suspension of the loss? How would your answer change if MOP were an LLC and Patricia had not personally guaranteed any of the debt?

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Definitions:

Supply Chain Profits

The total earnings generated across all stages of the product's journey from raw material to the end customer.

Wasted Capacity

The portion of production or storage capacity that goes unused or underutilized, often resulting in increased costs and inefficiencies.

Pricing

The process of determining the cost at which a product or service will be sold to consumers.

Influence Demand

The ability to affect consumer desire or need for products and services through marketing efforts, quality improvements, or price adjustments.