Question 1

Identify which of the following statements is true.

Accepted Answer

A) All of the partners in a limited partnership have limited liability. 
B) A limited partnership must have at least two general partners. 
C) A limited partnership cannot have a corporate general partner. 
D) All of the above are false. 
A) All of the partners in a limited partnership have limited liability. 
B) A limited partnership must have at least two general partners. 
C) A limited partnership cannot have a corporate general partner. 
D) All of the above are false.

Question 2

Henry has a 30% interest in the HMS Partnership's capital,profits,and losses computed after taking into account his guaranteed payment of $40,000.In the current year,HMS reports ordinary income of $30,000 and capital gains of $60,000 before taking into account Henry's guaranteed payment.What is the amount and character of all income or loss that Henry must report as a result of partnership activities?

Accepted Answer

A) $40,000 guaranteed payment (ordinary income),$3,000 ordinary loss,$18,000 capital gain 
B) $40,000 guaranteed payment (ordinary income),$15,000 capital gain 
C) $40,000 guaranteed payment (ordinary income),$9,000 ordinary income,$6,000 capital gain 
D) $13,000 guaranteed payment (ordinary income),$6,001 ordinary income,$38,820 capital gain 
A) $40,000 guaranteed payment (ordinary income),$3,000 ordinary loss,$18,000 capital gain 
B) $40,000 guaranteed payment (ordinary income),$15,000 capital gain 
C) $40,000 guaranteed payment (ordinary income),$9,000 ordinary income,$6,000 capital gain 
D) $13,000 guaranteed payment (ordinary income),$6,001 ordinary income,$38,820 capital gain

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

Guaranteed payments are always ordinary income to the recipient.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Identify which of the following statements is true.

Accepted Answer

A) A partner's distributive share includes the full amount of partnership ordinary income,which she must report on her tax return plus her share of separately stated taxable and tax-exempt items. 
B) Sam has a 20% interest in partnership capital and profits but a 40% interest in partnership losses.The partnership has no special allocations or precontribution gains or losses.In a year in which the partnership reports ordinary income of $100,000 and a capital loss of $30,000,Sam's distributive share is $20,000 ordinary income and $12,000 capital loss. 
C) The partner's distributive share is the partner's share of any assets distributed by the partnership. 
D) All of the above are false. 
A) A partner's distributive share includes the full amount of partnership ordinary income,which she must report on her tax return plus her share of separately stated taxable and tax-exempt items. 
B) Sam has a 20% interest in partnership capital and profits but a 40% interest in partnership losses.The partnership has no special allocations or precontribution gains or losses.In a year in which the partnership reports ordinary income of $100,000 and a capital loss of $30,000,Sam's distributive share is $20,000 ordinary income and $12,000 capital loss. 
C) The partner's distributive share is the partner's share of any assets distributed by the partnership. 
D) All of the above are false.

Question 8

Identify which of the following statements is false.

Accepted Answer

A) Jean and Blossom form an equal partnership.Jean contributes $10,000 cash and Blossom contributes property with a $10,000 FMV and a $5,000 basis.When the partnership sells the property contributed by Blossom for $10,000 shortly after the formation,Blossom must include the $5,000 gain in her income. 
B) In order to shift income/loss between partners,there must be substantial economic effect. 
C) The BB Partnership wants to make a special allocation of $10,000 of long-term capital gain to Bob and a special allocation of $10,000 of ordinary income to Briana.This allocation will have a substantial economic effect. 
D) Partners must make up negative balances in their capital accounts upon liquidation of the partnership. 
A) Jean and Blossom form an equal partnership.Jean contributes $10,000 cash and Blossom contributes property with a $10,000 FMV and a $5,000 basis.When the partnership sells the property contributed by Blossom for $10,000 shortly after the formation,Blossom must include the $5,000 gain in her income. 
B) In order to shift income/loss between partners,there must be substantial economic effect. 
C) The BB Partnership wants to make a special allocation of $10,000 of long-term capital gain to Bob and a special allocation of $10,000 of ordinary income to Briana.This allocation will have a substantial economic effect. 
D) Partners must make up negative balances in their capital accounts upon liquidation of the partnership.

Question 9

On January 2 of the current year,Calloway and Taylor contribute cash equally to form the CT Partnership.Calloway and Taylor share profits and losses in a ratio of 75% and 25%,respectively.The partnership's ordinary income for the year was $40,000.Calloway received a distribution of $5,000 during the year.What is Calloway's share of taxable income for the year?

Accepted Answer

A) $5,000 
B) $10,000 
C) $20,000 
D) $30,000 
A) $5,000 
B) $10,000 
C) $20,000 
D) $30,000

Question 10

Bud has devoted his life to his business,the BK Partnership,in which he owns an 85% capital and profits interest.Because he has worked so hard all his life,he never married and has no children.He has decided to give a 25% capital and profits interest to Berry,a close friend,if Berry will work in the business for five years.Berry will receive guaranteed payments for his work.Bud devotes all his time to the partnership,but he takes no salary.What tax issues should Bud and Berry consider with respect to the gift of the partnership interest and Bud's employment arrangement with the partnership?

Accepted Answer

• Do the family partnership rules apply

Question 11

Allen contributed land,which was being held for sale to Allen's customers,to a partnership in exchange for a 20% interest.The partnership uses the land in its business for three years and then sells the property.When the property was contributed,it had a basis in Allen's hands of $500,000 and an FMV of $600,000.The partnership sells the land for $700,000.The gain reported by the partnership is

Accepted Answer

A) $100,000 of ordinary income and $100,000 of Sec.1231 gain. 
B) $100,000 of Sec.1231 gain and $100,000 of capital gain. 
C) $200,000 of ordinary income. 
D) $200,000 of Sec.1231 gain. 
A) $100,000 of ordinary income and $100,000 of Sec.1231 gain. 
B) $100,000 of Sec.1231 gain and $100,000 of capital gain. 
C) $200,000 of ordinary income. 
D) $200,000 of Sec.1231 gain.

Question 12

A partner's basis for his partnership interest can be negative.

Accepted Answer

A) True 
 B)False

Question 13

George receives a 10% limited partnership interest (capital and profits interest)in the HIJ Partnership in return for managing the partnership's rental property.The partnership interest has an FMV of $35,000.What is the amount and character of the income (if any)that George must report as a result of becoming a partner?

Accepted Answer

George recognizes $35,000 of o

Question 14

On December 31 of last year,Alex and Jackson become equal partners in the AJ Partnership with assets having a tax basis and FMV of $120,000.The partnership,which deals in securities,had no liabilities at the end of last year.In January of this year,Franklin contributes his investment securities with an FMV of $60,000 (purchased two years ago at a cost of $45,000)to become an equal partner in the new AJF Partnership.The securities,which are inventory to the partnership,are sold on December 15 of the current year for $90,000.What amount and character of gain from the sale of these securities should be allocated to Franklin?

Accepted Answer

A) $10,000 ordinary income 
B) $15,000 capital gain and $10,000 ordinary income 
C) $25,000 capital gain 
D) $25,000 ordinary income 
A) $10,000 ordinary income 
B) $15,000 capital gain and $10,000 ordinary income 
C) $25,000 capital gain 
D) $25,000 ordinary income

Question 15

A partnership has one general partner,Allen,who materially participates in the business.Allen had a $30,000 distributive share of ordinary losses for this year and the partnership had no separately stated gains or losses.There are no changes in liabilities during this year and there are no additional contributions or distributions.At the beginning of this year,the Sec.705 basis was $40,000 and the at-risk basis was $15,000.The basis on December 31 of this year based on the above information is

Accepted Answer

A) $10,000. 
B) $15,000. 
C) $25,000. 
D) $40,000. 
A) $10,000. 
B) $15,000. 
C) $25,000. 
D) $40,000.

Question 16

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest.Yong had taken $10,000 of depreciation prior to the contribution.The partnership has no liabilities.As a result of the contribution,Yong must recognize

Accepted Answer

A) no gain or loss. 
B) a $5,000 Sec.1245 gain. 
C) a $5,000 capital gain. 
D) $10,000 ordinary income. 
A) no gain or loss. 
B) a $5,000 Sec.1245 gain. 
C) a $5,000 capital gain. 
D) $10,000 ordinary income.

Question 17

A partnership cannot make charitable contributions.

Accepted Answer

A) True 
 B)False

Question 18

Dinia has agreed to provide services valued at $30,000 to the L-M Partnership.On January 1 of the current year,she is given a 20% capital and profits interest in the partnership in exchange for her services.The partnership has no liabilities at the time but has assets with a basis of $50,000 and an FMV of $70,000.What are the tax consequences to Dinia and the partnership?

Accepted Answer

The transaction is taxed as if Dinia rec

Question 19

Identify which of the following statements is true.

Accepted Answer

A) A partner's relief of debt is treated as if the partner receives a cash distribution. 
B) When a partnership assumes any liabilities of the transferor,the transferor has an increase in the basis of his or her partnership interest. 
C) Gain recognized by a contributing partner because of the assumption of liabilities by the partnership increases the partnership's basis in the contributed property. 
D) All of the above are false. 
A) A partner's relief of debt is treated as if the partner receives a cash distribution. 
B) When a partnership assumes any liabilities of the transferor,the transferor has an increase in the basis of his or her partnership interest. 
C) Gain recognized by a contributing partner because of the assumption of liabilities by the partnership increases the partnership's basis in the contributed property. 
D) All of the above are false.

Question 20

Edward owns a 70% interest in the capital,profits,and losses of the Edward and Moore Partnership.During the year,Edward purchases surplus inventory from the partnership for $5,000.On the date of the sale,the inventory has an adjusted basis to the partnership of $8,000.For the year,the partnership's ordinary income is $50,000 after including the loss on the sale of the inventory to Edward.Assuming that there are no other partnership items to be separately stated,what is Edward's distributive share of the partnership's ordinary income for the year?

Accepted Answer

The loss will not be recognized by the p

Exam 9: Partnership Formation and Operation

Identify which of the following statements is true.

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

Guaranteed payments are always ordinary income to the recipient.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is false.

A partner's basis for his partnership interest can be negative.

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest.Yong had taken $10,000 of depreciation prior to the contribution.The partnership has no liabilities.As a result of the contribution,Yong must recognize

A partnership cannot make charitable contributions.

Identify which of the following statements is true.

Tax Research

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