Question 1

What form does a partnership use when filing an annual informational return?

Accepted Answer

A)  Form 1040. 
B)  Form 1041. 
C)  Form 1065. 
D)  Form 1120. 
A)  Form 1040. 
B)  Form 1041. 
C)  Form 1065. 
D)  Form 1120. C

Question 2

ER General Partnership,a medical supplies business,states in its partnership agreement that Erin and Ryan agree to split profits and losses according to a 40/60 ratio.Additionally,the partnership will provide Erin with a $15,000 guaranteed payment for services she provides to the partnership.ER Partnership reports the following revenues,expenses,gains,losses,and distributions for its current taxable year:
   *The Land is a Section 1231 asset
Given these items,answer the following questions:
A.Compute Erin's share of ordinary income (loss)and separately-stated items.Include her self-employment income as a separately-stated item.
B.Compute Erin's self-employment income,except assume ER Partnership is a limited partnership and Erin is a limited partner.
C.Compute Erin's self-employment income,except assume ER Partnership is an LLC and Erin is personally liable for half of the debt of the LLC.Apply the IRS's proposed regulations in formulating your answer.

Accepted Answer

A.Erin's share of ordinary income (loss)and separately-stated items are shown in the table below:
   Erin's self-employment income is ($3,800)+ $15,000 = $11,200.Because Erin is a general partner,she must include not only her guaranteed payment but also her share of the partnership's ordinary business income (loss).
B.Erin's self-employment income would only be $15,000.Since Erin is considered a limited partner,her share of the partnership's ordinary business income (loss)is not self-employment income.
C.Erin's self-employment income would be ($3,800)+ $15,000 = $11,200.This is similar to treating Erin as a general partner.Under proposed regulations,an LLC member that is (a)personally liable for LLC debt,(b)has authority to contract on behalf of the LLC,or (c)participates for more than 500 hours in the active trade or business of the LLC should treat her share of LLC ordinary business income as self-employment income.Any guaranteed payments received by LLC members are treated as self-employment income regardless.

Question 3

Which of the following statements regarding a partner's basis adjustments is true?

Accepted Answer

A)  A partner's basis may never be reduced below zero. 
B)  A partner must adjust his basis for ordinary income (loss) but not for separately-stated items. 
C)  A partnership fine or penalty paid by the partnership does not affect a partner's basis. 
D)  Relief of partnership debt increases a partner's tax basis. 
A)  A partner's basis may never be reduced below zero. 
B)  A partner must adjust his basis for ordinary income (loss) but not for separately-stated items. 
C)  A partnership fine or penalty paid by the partnership does not affect a partner's basis. 
D)  Relief of partnership debt increases a partner's tax basis. A

Question 4

In X1,Adam and Jason formed ABC,LLC,a car dealership in Kansas City.In X2,Adam and Jason realized they needed an advertising expert to assist in their business.Thus,the two members offered Cory,a marketing expert,a 1/3 capital interest in their partnership for contributing his expert services.Cory agreed to this arrangement and received his capital interest in X2.If the value of the LLC's capital equals $180,000 when Cory receives his 1/3 capital interest,which of the following tax consequences does not occur in X2?

Accepted Answer

A)  Cory reports $60,000 of ordinary income in X2. 
B)  Adam, Jason and Cory receive an ordinary deduction of $20,000 in X2. 
C)  Adam and Jason receive an ordinary deduction of $30,000 in X2. 
D)  Cory reports $60,000 of ordinary income in X2, and Adam and Jason receive an ordinary deduction of $30,000 in X2. 
A)  Cory reports $60,000 of ordinary income in X2. 
B)  Adam, Jason and Cory receive an ordinary deduction of $20,000 in X2. 
C)  Adam and Jason receive an ordinary deduction of $30,000 in X2. 
D)  Cory reports $60,000 of ordinary income in X2, and Adam and Jason receive an ordinary deduction of $30,000 in X2.

Question 5

Gerald received a one-third capital and profit (loss)interest in XYZ Limited Partnership (LP).In exchange for this interest,Gerald contributed a building with a FMV of $30,000.His adjusted basis in the building was $15,000.In addition,the building was encumbered with a $9,000 nonrecourse mortgage that XYZ,LP assumed at the time the property was contributed.What is Gerald's outside basis immediately after his contribution?

Accepted Answer

A)  $6,000. 
B)  $9,000. 
C)  $21,000. 
D)  $24,000. 
A)  $6,000. 
B)  $9,000. 
C)  $21,000. 
D)  $24,000.

Question 6

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)Increase for share of ordinary business income,(2)Decrease for share of separately stated loss items,and (3)Decrease for distributions?

Accepted Answer

A)  1, 3, 2. 
B)  1, 2, 3. 
C)  3, 1, 2. 
D)  2, 3, 1. 
A)  1, 3, 2. 
B)  1, 2, 3. 
C)  3, 1, 2. 
D)  2, 3, 1.

Question 7

Lincoln,Inc.,Washington,Inc.,and Adams,Inc.form Presidential Suites Partnership on February 15,20X9.Now,Presidential Suites must adopt its required tax year-end.The partners' year-ends,profits interests,and capital interests are reflected in the table below.Given this information,what tax year-end must Presidential Suites use and what rule requires this year-end?

Accepted Answer

Because the partners all have different

Question 8

Under general circumstances,debt is allocated from the partnership to each partner in the following manner:

Accepted Answer

A)  Recourse - profit sharing ratios; nonrecourse - profit sharing ratios. 
B)  Recourse - capital ratios; nonrecourse - capital ratios. 
C)  Recourse - to partners with the ultimate responsibility for paying the debt; nonrecourse - profit sharing ratios. 
D)  Recourse - profit sharing ratios; nonrecourse - to partners with the ultimate responsibility for paying the debt. 
A)  Recourse - profit sharing ratios; nonrecourse - profit sharing ratios. 
B)  Recourse - capital ratios; nonrecourse - capital ratios. 
C)  Recourse - to partners with the ultimate responsibility for paying the debt; nonrecourse - profit sharing ratios. 
D)  Recourse - profit sharing ratios; nonrecourse - to partners with the ultimate responsibility for paying the debt.

Question 9

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

Accepted Answer

A)  Only the partners' profits interests are relevant when determining if a partnership has a majority interest taxable year. 
B)  Under the principal partners test, a principal partner is defined as a partner having an interest of 3% or more in the profits or capital of the partnership. 
C)  The least aggregate deferral test utilizes the partners' capital interests to measure the amount of aggregate deferral. 
D)  A partnership is required to use a calendar year-end if it has a corporate partner. 
E)  None of the choices are true. 
A)  Only the partners' profits interests are relevant when determining if a partnership has a majority interest taxable year. 
B)  Under the principal partners test, a principal partner is defined as a partner having an interest of 3% or more in the profits or capital of the partnership. 
C)  The least aggregate deferral test utilizes the partners' capital interests to measure the amount of aggregate deferral. 
D)  A partnership is required to use a calendar year-end if it has a corporate partner. 
E)  None of the choices are true.

Question 10

A partner can generally apply passive activity losses against passive activity income for the year.

Accepted Answer

A) True 
 B)False

Question 11

An additional allocation of partnership debt or relief of partnership debt is considered to be a deemed cash contribution or cash distribution respectively.

Accepted Answer

A) True 
 B)False

Question 12

What is the rationale for the specific rules partnerships must follow in determining a partnership's taxable year-end?

Accepted Answer

A)  To increase the amount of aggregate tax deferral partners receive. 
B)  To minimize the amount of aggregate tax deferral partners receive. 
C)  To align the year-end of the partnership with the year-end of a majority of the partners. 
D)  To spread the workload of tax practitioners more evenly over the year 
E)  Both To minimize the amount of aggregate tax deferral partners receive and To align the year-end of the partnership with the year-end of a majority of the partners. 
A)  To increase the amount of aggregate tax deferral partners receive. 
B)  To minimize the amount of aggregate tax deferral partners receive. 
C)  To align the year-end of the partnership with the year-end of a majority of the partners. 
D)  To spread the workload of tax practitioners more evenly over the year 
E)  Both To minimize the amount of aggregate tax deferral partners receive and To align the year-end of the partnership with the year-end of a majority of the partners.

Question 13

Ruby's tax basis in her partnership interest at the beginning of the partnership's tax year was $13,000.The following items were included in her Schedule K-1 from the partnership for the year:
   Determine what amounts related to these items Ruby will report on her tax return assuming her tax basis and at risk amount are equal and that she is a material participant in the partnership's activities.

Accepted Answer

As shown in the table below,Ruby must fi

Question 14

Which of the following does not represent a tax election available to either partners or partnerships?

Accepted Answer

A)  Electing to change an accounting method. 
B)  Electing to amortize organization costs. 
C)  Electing to expense a portion of syndication costs. 
D)  Electing to immediately expense depreciable property under Section 179. 
A)  Electing to change an accounting method. 
B)  Electing to amortize organization costs. 
C)  Electing to expense a portion of syndication costs. 
D)  Electing to immediately expense depreciable property under Section 179.

Question 15

Fred has a 45% profits interest and 30% capital interest in the SAP Partnership and his tax basis before considering his share of SAP's current year loss is $11,000.Included in his tax basis is a $2,600 share of recourse debt and $5,300 share of nonrecourse debt.Fred is a limited partner in SAP.He is not involved in any other activities.If SAP has a $15,000 ordinary loss for the year,how much of the loss can be deducted currently,and how much of the loss is suspended because of the tax basis,the at-risk,and the passive activity loss limitations?

Accepted Answer

Fred is allocated 45 percent of the loss

Question 16

A partnership can elect to amortize organization and startup costs; however,syndication costs are not deductible.

Accepted Answer

A) True 
 B)False

Question 17

Why are guaranteed payments deducted in calculating the ordinary business income (loss)of partnerships and treated as a separately-stated item for the partners that receive the payment?

Accepted Answer

Guaranteed payments are conceptually sim

Question 18

A partnership may use the cash method despite having a corporate partner when the partnership's average gross receipts for the prior three taxable years don't exceed _________.

Accepted Answer

A)  $500,000. 
B)  $1,000,000. 
C)  $5,000,000. 
D)  Partnerships may never use the cash method if they have corporate partners. 
A)  $500,000. 
B)  $1,000,000. 
C)  $5,000,000. 
D)  Partnerships may never use the cash method if they have corporate partners.

Question 19

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

Accepted Answer

A)  Partnership losses must be used only in the year the losses are created. 
B)  Partnership losses may be carried back 2 years and carried forward 5 years. 
C)  Partnership losses may be carried forward indefinitely. 
D)  Partnership losses may be carried back 2 years and carried forward 20 years. 
A)  Partnership losses must be used only in the year the losses are created. 
B)  Partnership losses may be carried back 2 years and carried forward 5 years. 
C)  Partnership losses may be carried forward indefinitely. 
D)  Partnership losses may be carried back 2 years and carried forward 20 years.

Question 20

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Accepted Answer

A) True 
 B)False

What form does a partnership use when filing an annual informational return?

Which of the following statements regarding a partner's basis adjustments is true?

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)Increase for share of ordinary business income,(2)Decrease for share of separately stated loss items,and (3)Decrease for distributions?

Under general circumstances,debt is allocated from the partnership to each partner in the following manner:

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

A partner can generally apply passive activity losses against passive activity income for the year.

An additional allocation of partnership debt or relief of partnership debt is considered to be a deemed cash contribution or cash distribution respectively.

What is the rationale for the specific rules partnerships must follow in determining a partnership's taxable year-end?

Which of the following does not represent a tax election available to either partners or partnerships?

A partnership can elect to amortize organization and startup costs; however,syndication costs are not deductible.

Why are guaranteed payments deducted in calculating the ordinary business income (loss)of partnerships and treated as a separately-stated item for the partners that receive the payment?

A partnership may use the cash method despite having a corporate partner when the partnership's average gross receipts for the prior three taxable years don't exceed _________.

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Business Income,Deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Neorganization, and Liquidation

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 9: Forming and Operating Partnerships

What form does a partnership use when filing an annual informational return?

Which of the following statements regarding a partner's basis adjustments is true?

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)Increase for share of ordinary business income,(2)Decrease for share of separately stated loss items,and (3)Decrease for distributions?

Under general circumstances,debt is allocated from the partnership to each partner in the following manner:

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

A partner can generally apply passive activity losses against passive activity income for the year.

An additional allocation of partnership debt or relief of partnership debt is considered to be a deemed cash contribution or cash distribution respectively.

What is the rationale for the specific rules partnerships must follow in determining a partnership's taxable year-end?

Which of the following does not represent a tax election available to either partners or partnerships?

A partnership can elect to amortize organization and startup costs; however,syndication costs are not deductible.

Why are guaranteed payments deducted in calculating the ordinary business income (loss)of partnerships and treated as a separately-stated item for the partners that receive the payment?

A partnership may use the cash method despite having a corporate partner when the partnership's average gross receipts for the prior three taxable years don't exceed _________.

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Business Income,Deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Neorganization, and Liquidation

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters