Question 1

In a current (nonliquidating) distribution, loss never is recognized.

Accepted Answer

A) True 
 B)False

Question 2

The qualified business income deduction is calculated at the partner level. The partnership reports information the partner needs to calculate the deduction, such as W-2 wages and the unadjusted basis of the partnership's depreciable property.

Accepted Answer

A) True 
 B)False

Question 3

The QBI for each business is subject to the greater of two limitations: (1) 50% of W-2 wages ($20,000, or $40,000 x 50%) or (2) 25% of W-2 wages plus 2.5% of unadjusted basis {$40,000, or [($40,000 x 25%)= $10,000 + ($1.2 million x 2.5%) = $30,000]}. The greater of the two limitations is $40,000. Because this $40,000 is less than Patricia's tentative $50,000 QBI, the lower amount must be used. Patricia's QBI for this trade or business, then, is $40,000.
-At the beginning of the year, Elsie's basis in the E&G Partnership interest is $90,000. She receives a proportionate current (nonliquidating) distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $40,000), and land (basis of $30,000, fair market value of $50,000). After the distribution, Elsie's bases in the accounts receivable, land, and partnership interest are:

Accepted Answer

A)  $0; $30,000; and $50,000. 
B)  $0; $50,000; and $30,000. 
C)  $40,000; $30,000; and $10,000. 
D)  $40,000; $40,000; and $0. 
E)  $40,000; $50,000; and $0. 
A)  $0; $30,000; and $50,000. 
B)  $0; $50,000; and $30,000. 
C)  $40,000; $30,000; and $10,000. 
D)  $40,000; $40,000; and $0. 
E)  $40,000; $50,000; and $0.

Question 4

A gain arises only on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash.

Accepted Answer

A) True 
 B)False

Question 5

Jonathon owns a one-third interest in a liquidating partnership. Immediately before the liquidation, his basis in the partnership interest is $60,000. The partnership distributes cash of $32,000 and two parcels of land (each with a fair market value of $10,000). Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000. Jonathon's basis in the two parcels of land is:

Accepted Answer

A)  Parcel A, $2,000; Parcel B, $6,000. 
B)  Parcel A, $7,000; Parcel B, $21,000. 
C)  Parcel A, $10,000; Parcel B, $10,000. 
D)  Parcel A, $14,000; Parcel B, $14,000. 
E)  Parcel A, $15,000; Parcel B, $45,000. 
A)  Parcel A, $2,000; Parcel B, $6,000. 
B)  Parcel A, $7,000; Parcel B, $21,000. 
C)  Parcel A, $10,000; Parcel B, $10,000. 
D)  Parcel A, $14,000; Parcel B, $14,000. 
E)  Parcel A, $15,000; Parcel B, $45,000.

Question 6

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

Accepted Answer

A)  A partnership typically has easier administrative and filing requirements than does a C corporation. 
B)  Partnership income is subject to a single level of taxation; corporate income is double taxed. 
C)  Partnerships may specially allocate income and expenses among the partners provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings. 
D)  Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation. 
A)  A partnership typically has easier administrative and filing requirements than does a C corporation. 
B)  Partnership income is subject to a single level of taxation; corporate income is double taxed. 
C)  Partnerships may specially allocate income and expenses among the partners provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings. 
D)  Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.

Question 7

Palmer contributes property with a fair market value of $4,000,000 and an adjusted basis of $3,000,000 to AP Partnership. Palmer shares in $3,000,000 of partnership debt under the liability sharing rules, giving him an initial adjusted basis for his partnership interest of $6,000,000. One month after the contribution, Palmer receives a cash distribution from the partnership of $2,000,000. Palmer would not have contributed the property if the partnership had not contractually obligated itself to make the distribution. Assume that Palmer's share of partnership liabilities will not change as a result of this distribution.
a. Under the IRS's likely treatment of this transaction, what is the amount of gain or loss that
Palmer will recognize because of the $2,000,000 cash distribution?
b. What is the partnership's basis for the property after the distribution?
c. If Palmer is unhappy with this result, can you suggest a possible alternative that may provide him with a better answer?

Accepted Answer

a. Palmer will likely recognize a $500,0

Question 8

Which one of the following is an example of a special allocation of partnership income?

Accepted Answer

A)  The partnership's capital gains and losses are shown separately on Schedule K-1. 
B)  Distributions from the partnership to the partner are shown on Schedule K-1 line 20. 
C)  The partnership agreement provides that a partner will report all charitable contributions rather than his 20% distributive share. 
D)  The Schedule K-1 reports each partner's share of the information they need to calculate the § 199A (qualified business income) deduction. 
A)  The partnership's capital gains and losses are shown separately on Schedule K-1. 
B)  Distributions from the partnership to the partner are shown on Schedule K-1 line 20. 
C)  The partnership agreement provides that a partner will report all charitable contributions rather than his 20% distributive share. 
D)  The Schedule K-1 reports each partner's share of the information they need to calculate the § 199A (qualified business income) deduction.

Question 9

On June 30 of the current tax year, Sal sells her 40% interest in the STU Partnership to new partner James for $300,000, including Sal's share of partnership liabilities. At the beginning of the tax year, Sal's basis in her partnership interest was $80,000 (excluding her share of partnership debt). The partnership reported income of $240,000 for the year, and Sal's share of partnership debt was $100,000 at the sale date. (Assume the partnership uses a monthly proration of income.) At the sale date, the partnership's assets consist of cash ($390,000), land (basis of $180,000,
Fair market value of $210,000), and unrealized receivables (basis of $0, fair market value of $150,000). What is Sal's basis at the sale date, and how much gain must Sal recognize?

Accepted Answer

A)  $180,000 basis, $60,000 ordinary income, $60,000 capital gain. 
B)  $128,000 basis, $60,000 ordinary income, $112,000 capital gain. 
C)  $228,000 basis, $60,000 ordinary income, $12,000 capital gain. 
D)  $180,000 basis, $0 ordinary income, $120,000 capital gain. 
E)  $228,000 basis, $12,000 ordinary income, $60,000 capital gain. 
A)  $180,000 basis, $60,000 ordinary income, $60,000 capital gain. 
B)  $128,000 basis, $60,000 ordinary income, $112,000 capital gain. 
C)  $228,000 basis, $60,000 ordinary income, $12,000 capital gain. 
D)  $180,000 basis, $0 ordinary income, $120,000 capital gain. 
E)  $228,000 basis, $12,000 ordinary income, $60,000 capital gain.

Question 10

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $40,000), and land (basis of $40,000, fair market value of $50,000). In addition, the partnership repays all liabilities of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

Accepted Answer

A)  $0 basis in accounts receivable; $30,000 basis in land; $20,000 gain. 
B)  $0 basis in accounts receivable; $0 basis in land; $40,000 gain. 
C)  $0 basis in accounts receivable; $40,000 basis in land; $0 gain or loss. 
D)  $40,000 basis in accounts receivable; $20,000 basis in land; $20,000 gain. 
E)  $40,000 basis in accounts receivable; $20,000 basis in land; $100,000 gain. 
A)  $0 basis in accounts receivable; $30,000 basis in land; $20,000 gain. 
B)  $0 basis in accounts receivable; $0 basis in land; $40,000 gain. 
C)  $0 basis in accounts receivable; $40,000 basis in land; $0 gain or loss. 
D)  $40,000 basis in accounts receivable; $20,000 basis in land; $20,000 gain. 
E)  $40,000 basis in accounts receivable; $20,000 basis in land; $100,000 gain.

Question 11

Janella's basis in her partnership interest was $120,000, including her $150,000 share of partnership debt. At the end of the current year, the partnership pays off its debts and liquidates. Janella receives a proportionate liquidating distribution consisting of $42,000 cash and inventory valued at $24,000 (adjusted basis to the partnership = $20,000). How much gain or loss does Janella recognize, and what is her basis in the distributed property?

Accepted Answer

A)  $0 gain or loss; $78,000 basis in property. 
B)  $58,000 capital loss; $20,000 basis in property. 
C)  $30,000 capital gain; $24,000 basis in property. 
D)  $72,000 capital gain; $20,000 basis in property. 
E)  $72,000 capital gain; $0 basis in property. 
A)  $0 gain or loss; $78,000 basis in property. 
B)  $58,000 capital loss; $20,000 basis in property. 
C)  $30,000 capital gain; $24,000 basis in property. 
D)  $72,000 capital gain; $20,000 basis in property. 
E)  $72,000 capital gain; $0 basis in property.

Question 12

Which one of the following statements regarding partnership taxation is incorrect?

Accepted Answer

A)  A partnership is a tax-paying entity for Federal income tax purposes. 
B)  Partnership income is comprised of ordinary partnership income or loss and separately stated items. 
C)  A partnership is required to file a return with the IRS. 
D)  A partner's profit-sharing percentage may differ from the partner's loss-sharing percentage. 
E)  All of these are correct. 
A)  A partnership is a tax-paying entity for Federal income tax purposes. 
B)  Partnership income is comprised of ordinary partnership income or loss and separately stated items. 
C)  A partnership is required to file a return with the IRS. 
D)  A partner's profit-sharing percentage may differ from the partner's loss-sharing percentage. 
E)  All of these are correct.

Question 13

Match each of the following statements with the numbered terms below that provide the best definition.
-Limited liability company

Accepted Answer

A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Partnership in which partners are liable only for any partner's malpractice. 
E) Amount that might be reported on either form 1065, page 1 or, on Schedule K.
F)Transfer of asset to partnership followed by immediate distribution of cash to partner.
G)Must have at least one general and one limited partner.
H)Long-term capital gain might be recharacterized as ordinary income.
I)All partners are jointly and severally liable for entity debts.
J)Theory treating the partner and partnership as separate economic units.
K)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L)Partnership's basis in asset after tax-free contribution of asset to partnership.
M)One way to calculate a partner's economic interest in the partnership.
N)Owners are members.
O)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P)Participates in management.
Q)Not liable for entity debts.
R)No correct match provided. 
A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Partnership in which partners are liable only for any partner's malpractice. 
E) Amount that might be reported on either form 1065, page 1 or, on Schedule K.
F)Transfer of asset to partnership followed by immediate distribution of cash to partner.
G)Must have at least one general and one limited partner.
H)Long-term capital gain might be recharacterized as ordinary income.
I)All partners are jointly and severally liable for entity debts.
J)Theory treating the partner and partnership as separate economic units.
K)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L)Partnership's basis in asset after tax-free contribution of asset to partnership.
M)One way to calculate a partner's economic interest in the partnership.
N)Owners are members.
O)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P)Participates in management.
Q)Not liable for entity debts.
R)No correct match provided.

Question 14

Match each of the following statements with the terms below that provide the best definition.
-Outside basis

Accepted Answer

A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to taxable income. 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Theory under which a partnership's recourse debt is shared among the partners.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided. 
A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to taxable income. 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Theory under which a partnership's recourse debt is shared among the partners.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided.

Question 15

During the current year, MAC Partnership reported the following items of receipts and expenditures: $600,000 sales,
$80,000 utilities and rent, $200,000 salaries to employees, $20,000 guaranteed payment to partner Antonio for services to the partnership, investment interest income of $4,000, a charitable contribution of $8,000, and a distribution of $30,000 to partner Carl. Antonio is a 25% general partner. Based on this information, what information will be shown on Antonio's Schedule K-1? What income and deductions will Antonio report? What taxes and other calculations might Antonio need to report?

Accepted Answer

@#IMG-DLM& @#IMG-DLM& The distribution to Carl is not deduct

Question 16

Fern, Inc., Ivy, Inc., and Jeremy formed a general partnership. Fern owns a 50% interest, and Ivy and Jeremy both own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc., files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose?

Accepted Answer

A)  The partnership must choose the calendar year because it has no principal partners. 
B)  The partnership must choose an October year-end because Fern, Inc., is a principal partner. 
C)  The partnership can request permission from the IRS to use a January 31 fiscal year under § 444. 
D)  The partnership must use the least aggregate deferral method to determine its required taxable year. 
A)  The partnership must choose the calendar year because it has no principal partners. 
B)  The partnership must choose an October year-end because Fern, Inc., is a principal partner. 
C)  The partnership can request permission from the IRS to use a January 31 fiscal year under § 444. 
D)  The partnership must use the least aggregate deferral method to determine its required taxable year.

Question 17

In a proportionate liquidating distribution, RST Partnership distributes to partner Riley cash of $30,000, accounts receivable (basis of $0, fair market value of $40,000), and land (basis of $65,000, fair market value of $50,000). Riley's basis was $40,000 before the distribution. On the liquidation, Riley recognizes a gain of $0, and her basis is
$10,000 in the land and $0 in the accounts receivable.

Accepted Answer

A) True 
 B)False

Question 18

Match each of the following statements with the terms below that provide the best definition.
-Guaranteed payment

Accepted Answer

A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to taxable income. 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Theory under which a partnership's recourse debt is shared among the partners.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided. 
A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to taxable income. 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Theory under which a partnership's recourse debt is shared among the partners.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided.

Question 19

Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

Accepted Answer

A)  Allocations of cash flows. 
B)  Allocations of profits and losses. 
C)  Liquidating distributions. 
D)  Partners' rights in managing the partnership. 
E)  All of these. 
A)  Allocations of cash flows. 
B)  Allocations of profits and losses. 
C)  Liquidating distributions. 
D)  Partners' rights in managing the partnership. 
E)  All of these.

Question 20

Match each of the following statements with the numbered terms below that provide the best definition.
-Limited partnership

Accepted Answer

A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Partnership in which partners are liable only for any partner's malpractice. 
E) Amount that might be reported on either form 1065, page 1 or, on Schedule K.
F)Transfer of asset to partnership followed by immediate distribution of cash to partner.
G)Must have at least one general and one limited partner.
H)Long-term capital gain might be recharacterized as ordinary income.
I)All partners are jointly and severally liable for entity debts.
J)Theory treating the partner and partnership as separate economic units.
K)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L)Partnership's basis in asset after tax-free contribution of asset to partnership.
M)One way to calculate a partner's economic interest in the partnership.
N)Owners are members.
O)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P)Participates in management.
Q)Not liable for entity debts.
R)No correct match provided. 
A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Partnership in which partners are liable only for any partner's malpractice. 
E) Amount that might be reported on either form 1065, page 1 or, on Schedule K.
F)Transfer of asset to partnership followed by immediate distribution of cash to partner.
G)Must have at least one general and one limited partner.
H)Long-term capital gain might be recharacterized as ordinary income.
I)All partners are jointly and severally liable for entity debts.
J)Theory treating the partner and partnership as separate economic units.
K)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L)Partnership's basis in asset after tax-free contribution of asset to partnership.
M)One way to calculate a partner's economic interest in the partnership.
N)Owners are members.
O)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P)Participates in management.
Q)Not liable for entity debts.
R)No correct match provided.

In a current (nonliquidating) distribution, loss never is recognized.

The qualified business income deduction is calculated at the partner level. The partnership reports information the partner needs to calculate the deduction, such as W-2 wages and the unadjusted basis of the partnership's depreciable property.

A gain arises only on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash.

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

Which one of the following is an example of a special allocation of partnership income?

Which one of the following statements regarding partnership taxation is incorrect?

Match each of the following statements with the numbered terms below that provide the best definition. -Limited liability company

Match each of the following statements with the terms below that provide the best definition. -Outside basis

Match each of the following statements with the terms below that provide the best definition. -Guaranteed payment

Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

Match each of the following statements with the numbered terms below that provide the best definition. -Limited partnership

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Exam 21: Partnerships

In a current (nonliquidating) distribution, loss never is recognized.

The qualified business income deduction is calculated at the partner level. The partnership reports information the partner needs to calculate the deduction, such as W-2 wages and the unadjusted basis of the partnership's depreciable property.

A gain arises only on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash.

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

Which one of the following is an example of a special allocation of partnership income?

Which one of the following statements regarding partnership taxation is incorrect?

Match each of the following statements with the numbered terms below that provide the best definition. -Limited liability company

Match each of the following statements with the terms below that provide the best definition. -Outside basis

Match each of the following statements with the terms below that provide the best definition. -Guaranteed payment

Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

Match each of the following statements with the numbered terms below that provide the best definition. -Limited partnership

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters