Question 1

Explain the difference between partnership distributions and distributive shares.

Accepted Answer

Partnership distributions represent the receipt of earnings that have already been taxed to the partners.They reduce each partner's basis in his or her partnership interest,and generally are tax-free.If the distribution exceeds the partner's basis in his or her partnership interest,the partner will recognize a gain equal to the amount of the excess.A partner's distributive share is the portion of the partnership's taxable and nontaxable items that are allocated to the partner for a given partnership year.Each partner must report and pay taxes on his or her distributive share.The partner's distributive share is normally determined by the terms of the partnership agreement.If the partnership agreement is silent,all of the facts and circumstances are considered when determining the partner's overall interest in the partnership.Actual partnership distributions allocated to a partner may be more or less than his or her distributive share for that partnership year.

Question 2

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. A

Question 3

The RT Limited Partnership incurs the following expenses during the time that the partnership is being organized:
Attorneys' fees:
   Accountants' fees:
   What is the maximum amount that the partnership can deduct as an organization and syndication expense for the first year in which the partnership begins business,assuming the business began on October 1?

Accepted Answer

The attorneys' fees for drawing up the partnership agreement and the accountants' fees for establishing the accounting system are eligible to be amortized as organization and syndication expenses.$5,000 of the expenses can be deducted in the first year and the remainder amortized over 180 months,resulting in a $61 deduction per month ($11,000/180).The total expense is $5,183 [$5,000 + (61 × 3)].The accountants' fees for bookkeeping are deductible as trade or business expenses under Sec.162.The attorneys' advice is deducted when the partnership terminates or is liquidated.

Question 4

Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.

Accepted Answer

A special allocation must be stated in t

Question 5

David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital,profits,and losses.The land is subject to a $30,000 recourse liability,which is assumed by the partnership.The partnership has other recourse liabilities of $18,000.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.David must recognize a

Accepted Answer

A) $3,000 capital gain. 
B) $3,000 capital loss. 
C) $1,200 capital gain. 
D) $1,200 capital loss. 
A) $3,000 capital gain. 
B) $3,000 capital loss. 
C) $1,200 capital gain. 
D) $1,200 capital loss.

Question 6

Identify which of the following statements is true.

Accepted Answer

A) When adjusting a partner's basis in a partnership interest,the negative basis adjustments are made prior to the positive basis adjustments. 
B) Martin and Carlos formed an equal partnership to which Martin contributed $10,000 cash and Carlos contributed a building worth $10,000 with a basis of $2,000.In the first year of operation,the partnership suffered a $10,000 ordinary loss.Martin and Carlos can each deduct a $5,000 loss on their personal tax returns. 
C) Any distributive share of a loss that cannot be deducted by a partner because of the Sec.704(d)basis loss limitation is permanently lost. 
D) All of the above are false. 
A) When adjusting a partner's basis in a partnership interest,the negative basis adjustments are made prior to the positive basis adjustments. 
B) Martin and Carlos formed an equal partnership to which Martin contributed $10,000 cash and Carlos contributed a building worth $10,000 with a basis of $2,000.In the first year of operation,the partnership suffered a $10,000 ordinary loss.Martin and Carlos can each deduct a $5,000 loss on their personal tax returns. 
C) Any distributive share of a loss that cannot be deducted by a partner because of the Sec.704(d)basis loss limitation is permanently lost. 
D) All of the above are false.

Question 7

Bob,Kara,and Mark are partners in the BKM Partnership.Bob is a 40% partner and has a June 30 tax year-end.Kara owns a 40% interest in the partnership and has a September 30 tax year-end,and Mark owns the remaining 20% interest and has an October 31 tax year-end.The partnership does not have a natural business year.What is the required tax year-end for the partnership (if no Sec.444 election is made)?

Accepted Answer

A) June 30 
B) September 30 
C) October 31 
D) December 31 
A) June 30 
B) September 30 
C) October 31 
D) December 31

Question 8

When determining the guaranteed payment,which of the following statements is correct?

Accepted Answer

A) If the distributive share is less than the guaranteed minimum amount,the guaranteed payment is equal to the difference between the distributive share and the guaranteed minimum amount. 
B) If the distributive share is greater than the guaranteed minimum amount,the guaranteed payment is equal to the difference between the distributive share and the guaranteed minimum amount. 
C) Guaranteed payments are payments determined with regard to the partnership income. 
D) The distinction between guaranteed payments and distributive shares is clear in practice. 
A) If the distributive share is less than the guaranteed minimum amount,the guaranteed payment is equal to the difference between the distributive share and the guaranteed minimum amount. 
B) If the distributive share is greater than the guaranteed minimum amount,the guaranteed payment is equal to the difference between the distributive share and the guaranteed minimum amount. 
C) Guaranteed payments are payments determined with regard to the partnership income. 
D) The distinction between guaranteed payments and distributive shares is clear in practice.

Question 9

Mary and Martha,who had been friends for years,decided to open a retail store to sell kitchen and bath items.In June,they spent $500 looking for a suitable location.They paid an attorney $1,500 to have their partnership agreement drawn up,and they paid an accountant $400 to set up their accounting system.During July,they searched for vendors for the merchandise they planned to carry and stocked their shelves.The store opened in August and was immediately successful.They paid the accountant $300 to prepare an income statement for August.What tax issues should the partnership consider with regard to beginning this business?

Accepted Answer

• What items qualify as organizational e

Question 10

Doug purchases a 20% interest in the Quix Partnership for $10,000 on January 1,2019,and begins to materially participate in the partnership's business.The Quix Partnership uses the calendar year as its tax year.At the time of the purchase,the Quix Partnership has $4,000 in liabilities,and Doug's share is 20%.What is Doug's basis in his partnership interest on January 1,2010?

Accepted Answer

The answer of Doug purchases a 20% interest in the...

Question 11

Samantha works 40 hours a week as a clerk in the mall and earns $28,000.In addition,she works five hours each week in the XYZ Partnership's office.Samantha,a 15% limited partner in the XYZ Partnership,has been allocated a $4,000 loss from the partnership for the current year.The basis for her interest in XYZ before accounting for current operations is $7,000.What tax issues should Samantha consider with respect to her interest in,and employment by,the XYZ Partnership?

Accepted Answer

• What is Samantha's deductible loss fro

Question 12

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec.721 nontaxable treatment?

Accepted Answer

No.The service partner recogni

Question 13

Miguel has a 50% interest in partnership capital,profits,and losses.The basis for his partnership interest is $50,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Miguel receives a distribution of land that has an FMV of $40,000 and an adjusted basis of $30,000.The land is subject to a $15,000 liability,which Miguel assumes.His basis in the partnership interest following the land distribution is

Accepted Answer

A) $12,500. 
B) $20,000. 
C) $27,500. 
D) $35,000. 
A) $12,500. 
B) $20,000. 
C) $27,500. 
D) $35,000.

Question 14

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 15

Jane contributes land with an FMV of $100,000 and a basis of $80,000 to the Green Partnership in exchange for a 25% partnership interest.The partnership assumes the $40,000 mortgage on the land.Mary has a 25% share of partnership liabilities.The Green Partnership has $8,000 in liabilities immediately before Jane's contribution.What is Jane's basis in her partnership interest?

Accepted Answer

@#IMG-DLM& 
Jane does recognize any gain on the pa

Question 16

The WE Partnership reports the following items for its current tax year:
   Expenses
   What is the WE Partnership's ordinary income for the current year?

Accepted Answer

The income items,which are ordinary,tota

Question 17

Meg and Abby are equal partners in the AM Partnership,which earns $40,000 ordinary income,$6,000 long-term capital gain (LTCG),and $2,000 Sec.1231 loss during the current year.What is the amount and character of income that must be reported on Abby's tax return for this year's partnership operations?

Accepted Answer

A) $20,000 ordinary income,$3,000 LTCG,$1,000 Sec.1231 loss 
B) $19,000 ordinary income,$3,000 LTCG 
C) $23,000 ordinary income,$1,000 Sec.1231 loss 
D) $22,000 ordinary income 
A) $20,000 ordinary income,$3,000 LTCG,$1,000 Sec.1231 loss 
B) $19,000 ordinary income,$3,000 LTCG 
C) $23,000 ordinary income,$1,000 Sec.1231 loss 
D) $22,000 ordinary income

Question 18

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 19

David purchased a 10% capital and profits interest in a partnership this year.He does not participate in the partnership's business.David has no passive income in the current year.His distributive share of the partnership's loss is $40,000 for this year.David's Sec.705 basis in the partnership is $32,000 and his at-risk basis is $16,000 at the end of the current year.How much of the loss can David deduct on his tax return?

Accepted Answer

A) $0 
B) $16,000 
C) $32,000 
D) $40,000 
A) $0 
B) $16,000 
C) $32,000 
D) $40,000

Question 20

Limited partners must consider the at-risk,basis,and passive loss limitations when determining the amount of their deductible loss.

Accepted Answer

A) True 
 B)False

Exam 9: Partnership Formation and Operation

Explain the difference between partnership distributions and distributive shares.

Identify which of the following statements is true.

Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.

Identify which of the following statements is true.

When determining the guaranteed payment,which of the following statements is correct?

Does the contribution of services to a partnership in exchange for an unrestricted partnership interest qualify for Sec.721 nontaxable treatment?

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

The WE Partnership reports the following items for its current tax year: Expenses What is the WE Partnership's ordinary income for the current year?

Identify which of the following statements is true.

Limited partners must consider the at-risk,basis,and passive loss limitations when determining the amount of their deductible loss.

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

Consolidated Tax Returns

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Ustaxation 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

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

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

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters