Question 1

Identify which of the following statements is true.

Accepted Answer

A) The Hunter Partnership has a net long-term capital gain of $4,000 and a net short-term capital loss of $1,000 for the current tax year.The gain and loss will be netted and the partners will include their proportionate share of the $3,000 net long-term capital gain on their return. 
B) The Right Partnership sells a delivery truck and recognizes a gain of $2,000,which represents depreciation recaptured under Sec.1245.The $2,000 gain will retain its identity as a separately stated item. 
C) For tax purposes,the partnership takes a carryover basis in the contributed property that references the contributing partner's basis. 
D) All of the above are false. 
A) The Hunter Partnership has a net long-term capital gain of $4,000 and a net short-term capital loss of $1,000 for the current tax year.The gain and loss will be netted and the partners will include their proportionate share of the $3,000 net long-term capital gain on their return. 
B) The Right Partnership sells a delivery truck and recognizes a gain of $2,000,which represents depreciation recaptured under Sec.1245.The $2,000 gain will retain its identity as a separately stated item. 
C) For tax purposes,the partnership takes a carryover basis in the contributed property that references the contributing partner's basis. 
D) All of the above are false.

Question 2

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

Accepted Answer

A) $10,000. 
B) $12,000. 
C) $14,000. 
D) $30,000. 
A) $10,000. 
B) $12,000. 
C) $14,000. 
D) $30,000.

Question 3

Identify which of the following statements is true.

Accepted Answer

A) Although a partner's basis in the partnership cannot go below zero,a partner's book capital account (equity)may be negative. 
B) Tom purchased for cash a 40% capital,profits,and loss interest in the TP General Partnership.His $140,000 basis in his partnership interest includes his $45,000 share of recourse debt and his $30,000 of nonrecourse debt (that is not qualified nonrecourse real estate financing).His at-risk basis cannot be more than $65,000. 
C) Terri is a limited partner in the STU Partnership,which manufactures children's toys.Because the partnership is actively involved in a trade or business,Terri's income from the partnership is classified as active income for the passive activity loss rules. 
D) All of the above are false. 
A) Although a partner's basis in the partnership cannot go below zero,a partner's book capital account (equity)may be negative. 
B) Tom purchased for cash a 40% capital,profits,and loss interest in the TP General Partnership.His $140,000 basis in his partnership interest includes his $45,000 share of recourse debt and his $30,000 of nonrecourse debt (that is not qualified nonrecourse real estate financing).His at-risk basis cannot be more than $65,000. 
C) Terri is a limited partner in the STU Partnership,which manufactures children's toys.Because the partnership is actively involved in a trade or business,Terri's income from the partnership is classified as active income for the passive activity loss rules. 
D) All of the above are false.

Question 4

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Accepted Answer

A) True 
 B)False

Question 5

Ali,a contractor,builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000.Which of the following statements is correct?

Accepted Answer

A) Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year. 
B) Ali recognizes no income and the partnership can deduct nothing in the current year. 
C) Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense. 
D) Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount. 
A) Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year. 
B) Ali recognizes no income and the partnership can deduct nothing in the current year. 
C) Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense. 
D) Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.

Question 6

A partner's share of nonrecourse debt increases that partner's share of basis.

Accepted Answer

A) True 
 B)False

Question 7

Identify which of the following statements is true.

Accepted Answer

A) Bob gives his 16-year-old daughter Michelle a 20% capital and profits interest in his accounting practice.She does no work for the partnership and is not involved at all with the operations of the partnership.In fact,she does not know that her dad transferred the interest in the partnership to her.If the partnership allocates an $8,000 distributive share of ordinary income to her,it is properly reported on Michelle's individual tax return. 
B) Valid family partnership partners may be subject to the "kiddie tax." 
C) Joan gives her daughter,Sarah,a 25% interest in a partnership that operates a steel mill.Sarah,age 19,was allocated $20,000 from the partnership as her share of the partnership ordinary income.The IRS will require the income to be included on Sarah's return. 
D) All of the above are false. 
A) Bob gives his 16-year-old daughter Michelle a 20% capital and profits interest in his accounting practice.She does no work for the partnership and is not involved at all with the operations of the partnership.In fact,she does not know that her dad transferred the interest in the partnership to her.If the partnership allocates an $8,000 distributive share of ordinary income to her,it is properly reported on Michelle's individual tax return. 
B) Valid family partnership partners may be subject to the "kiddie tax." 
C) Joan gives her daughter,Sarah,a 25% interest in a partnership that operates a steel mill.Sarah,age 19,was allocated $20,000 from the partnership as her share of the partnership ordinary income.The IRS will require the income to be included on Sarah's return. 
D) All of the above are false.

Question 8

A partnership cannot make charitable contributions.

Accepted Answer

A) True 
 B)False

Question 9

Identify which of the following statements is true.

Accepted Answer

A) Tax-exempt interest received by a partnership is taxable to the partners if distributed. 
B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items. 
C) The amount and character of any gains/losses are determined at the partnership level. 
D) All of the above are false. 
A) Tax-exempt interest received by a partnership is taxable to the partners if distributed. 
B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items. 
C) The amount and character of any gains/losses are determined at the partnership level. 
D) All of the above are false.

Question 10

The definition of a partnership does not include

Accepted Answer

A) a syndicate. 
B) a group. 
C) a pool. 
D) All of the above are included. 
A) a syndicate. 
B) a group. 
C) a pool. 
D) All of the above are included.

Question 11

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

Accepted Answer

A) True 
 B)False

Question 12

Brent is a limited partner in BC Partnership.His distributive share of partnership income and his guaranteed payment for the year are as follows: $$\begin{array} { | l | l | } 
\hline \text { Ordinary income } & \$ 30,000 \
\hline \text { Short-term capital gain } & \$ 18,000 \
\hline \text { Guaranteed payment } & \$ 36,000 \
\hline
\end{array}$$ What is his self-employment income?

Accepted Answer

A) $84,000 
B) $66,000 
C) $48,000 
D) $36,000 
A) $84,000 
B) $66,000 
C) $48,000 
D) $36,000

Question 13

Identify which of the following statements is true.

Accepted Answer

A) The contribution of Sec.1245 property to a partnership triggers recognition of ordinary income by the contributor at the time of the transfer. 
B) A partner may not recognize ordinary income when receiving a capital and profits interest in a partnership in exchange for services. 
C) When a partnership interest is given to a partner in exchange for services,the partnership can deduct or capitalize the FMV of the services,depending on the nature of the services. 
D) All of the above are false. 
A) The contribution of Sec.1245 property to a partnership triggers recognition of ordinary income by the contributor at the time of the transfer. 
B) A partner may not recognize ordinary income when receiving a capital and profits interest in a partnership in exchange for services. 
C) When a partnership interest is given to a partner in exchange for services,the partnership can deduct or capitalize the FMV of the services,depending on the nature of the services. 
D) All of the above are false.

Question 14

Identify which of the following statements is true.

Accepted Answer

A) A partner who performs services for a partnership is usually not considered an employee of the partnership. 
B) It may be necessary for the partnership to capitalize a partner's guaranteed payment. 
C) Guaranteed payments are ordinary income to the recipient. 
D) All of the above are true. 
A) A partner who performs services for a partnership is usually not considered an employee of the partnership. 
B) It may be necessary for the partnership to capitalize a partner's guaranteed payment. 
C) Guaranteed payments are ordinary income to the recipient. 
D) All of the above are true.

Question 15

Stan had a basis in his partnership interest at the beginning of last year of $30,000.There was no change in partnership liabilities during the year.His share of the partnership's ordinary loss last year was $40,000 and the partnership had no separately stated items.This year,Stan has a distributive share of ordinary income of $30,000.The taxable income from the partnership reported on Stan's personal income tax return this year (ignoring the at-risk and passive activity loss limitations)is

Accepted Answer

A) $10,000 ordinary loss. 
B) $20,000 ordinary income. 
C) $30,000 ordinary income. 
D) $40,000 ordinary income. 
A) $10,000 ordinary loss. 
B) $20,000 ordinary income. 
C) $30,000 ordinary income. 
D) $40,000 ordinary income.

Question 16

Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000.The land was subject to a $48,000 mortgage,which was assumed by STUV.No other liabilities existed at the time of contribution.What is Stella's basis in her partnership interest?

Accepted Answer

A) $0 
B) $32,000 
C) $52,000 
D) $64,000 
A) $0 
B) $32,000 
C) $52,000 
D) $64,000

Question 17

A partner's basis for his or her partnership interest is increased by his share of the partnership's tax-exempt income.

Accepted Answer

A) True 
 B)False

Question 18

Matt and Joel are equal partners in the MJ Partnership.For the current year ended December 31,the partnership has book income of $80,000,which includes the following deductions: (1)guaranteed payments (salaries)to partners: Matt,$35,000; and Joel,$25,000; and (2)charitable contributions,$6,000.The book income amount does not include any sales of capital assets or Sec.1231 assets or any tax-exempt income.Based on the above information,what amount should be reported as ordinary income on the partnership return?

Accepted Answer

A) $60,000 
B) $80,000 
C) $86,000 
D) $140,000 
A) $60,000 
B) $80,000 
C) $86,000 
D) $140,000

Question 19

Bob contributes cash of $40,000 and Carol contributes land with a basis of $25,000 and an FMV of $40,000 to become equal partners in the BC Partnership.The partnership immediately obtains a $30,000 mortgage on the land and the partners will share the economic risk of loss equally.What are the two partners' bases in the partnership after these transactions are completed?

Accepted Answer

The answer of Bob contributes cash of $40,000 and Carol...

Question 20

Yee manages Huang real estate,a partnership in which she is also a partner.She receives 40% of all partnership income before guaranteed payments,but no less than $80,000 per year.In the current year,the partnership reports $100,000 in ordinary income.What is Yee's distributive share and her guaranteed payment?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
 \text { Distributive Share } & \text { Payment } \
\hline \$ 40,000 & 0 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
\text { Distributive Share } & \text { Payment } \
\hline \$ 40,000 & \$ 80,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
\text { Distributive Share } & \text { Payment } \
\hline \$ 40,000 & \$ 40,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
 \text { Distributive Share } & \text { Payment } \
\hline 0 & \$ 80,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
 \text { Distributive Share } & \text { Payment } \
\hline \$ 40,000 & 0 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
\text { Distributive Share } & \text { Payment } \
\hline \$ 40,000 & \$ 80,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
\text { Distributive Share } & \text { Payment } \
\hline \$ 40,000 & \$ 40,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline & \text { Guaranteed } \
 \text { Distributive Share } & \text { Payment } \
\hline 0 & \$ 80,000 \
\hline
\end{array}$$

Exam 9: Partnership Formation and Operation

Identify which of the following statements is true.

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

Identify which of the following statements is true.

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Ali,a contractor,builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000.Which of the following statements is correct?

A partner's share of nonrecourse debt increases that partner's share of basis.

Identify which of the following statements is true.

A partnership cannot make charitable contributions.

Identify which of the following statements is true.

The definition of a partnership does not include

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

Brent is a limited partner in BC Partnership.His distributive share of partnership income and his guaranteed payment for the year are as follows: Ordinary income \ 30,000 Short-term capital gain \ 18,000 Guaranteed payment \ 36,000 What is his self-employment income?

Identify which of the following statements is true.

Identify which of the following statements is true.

A partner's basis for his or her partnership interest is increased by his share of the partnership's tax-exempt income.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

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Special Partnership Issues

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Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

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Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

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