Question 1

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

Accepted Answer

A) True 
 B)False

Question 2

Hannah sells her 25% interest in the HIJK Partnership to Alyssa for $120,000 cash.At the end of the year prior to the sale, Hannah's basis in HIJK was $70,000.The partnership allocates $15,000 of income to Hannah for the portion of the year she was a partner.On the date of the sale, the partnership assets and the agreed fair market values were as follows.
   Determine the amount and character of any gain that Hannah recognizes on the sale.

Accepted Answer

Hannah's basis is increased from $70,000

Question 3

When property is contributed to a partnership for a capital and profits interest, the holding period of the contributing partner's interest:

Accepted Answer

A) Always starts the day after the contribution date. 
B) Always starts the day the property was contributed. 
C) May include the holding period of the contributed property. 
D) Never includes the holding period of the contributed property. 
E) None of the above. 
A) Always starts the day after the contribution date. 
B) Always starts the day the property was contributed. 
C) May include the holding period of the contributed property. 
D) Never includes the holding period of the contributed property. 
E) None of the above.

Question 4

Matt, a partner in the MB Partnership, receives a proportionate, nonliquidating distribution of property having a fair market value of $16,000 and a partnership basis of $23,000.Matt's basis in the partnership is $10,000 before the distribution.In this situation, Matt will recognize a $6,000 gain, take a $16,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Accepted Answer

A) True 
 B)False

Question 5

At the beginning of the tax year, Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000. His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000. He also received a distribution from the partnership of $20,000 cash during the year. For the tax year, Zach will report:

Accepted Answer

A) A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000. 
B) An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000. 
C) A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000. 
D) An ordinary loss of $44,000 and a nontaxable distribution of $20,000. 
A) A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000. 
B) An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000. 
C) A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000. 
D) An ordinary loss of $44,000 and a nontaxable distribution of $20,000.

Question 6

During the current year, MAC Partnership reported the following items of receipts and expenditures: $300,000 sales, $60,000 utilities and rent, $100,000 salaries to employees, $40,000 guaranteed payment to partner Mitchell, investment interest income of $4,000, a charitable contribution of $6,000, and a distribution of $20,000 to partner Chad.Austin is a 40% partner.What items will be reflected on Austin's Schedule K-1?

Accepted Answer

The partnership's ordinary taxable incom

Question 7

The JPM Partnership is a US-based manufacturing company.JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Accepted Answer

A) True 
 B)False

Question 8

Greg and Justin are forming the GJ Partnership.Greg contributes $500,000 cash and Justin contributes nondepreciable property with an adjusted basis of $200,000 and a fair market value of $550,000.The property is subject to a $50,000 liability, which is also transferred into the partnership and is shared equally by the partners for basis purposes.Greg and Justin share in all partnership profits equally except for any precontribution gain, which must be allocated according to the statutory rules for built-in gain allocations.

Accepted Answer

The answer of Greg and Justin are forming the GJ...

Question 9

Lori, a partner in the JKL partnership, received a proportionate nonliquidating distribution of $10,000 cash, unrealized receivables with a basis of $0 and a fair market value of $15,000, and land with a basis of $6,000 and a fair market value of $10,000.Her basis in the partnership interest immediately before the distributions was $14,000.She will recognize $0 gain on the distribution, and her basis in the receivables and land will be $0 and $4,000 respectively.

Accepted Answer

A) True 
 B)False

Question 10

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Accepted Answer

A) True 
 B)False

Question 11

Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate nonliquidating distribution consisting of land held for investment with a basis to CAR of $40,000 (value of $60,000), and inventory with a basis of $40,000 (value of $40,000).After the distribution, Catherine's bases in the land and inventory are:

Accepted Answer

A) $40,000 (land); $40,000 (inventory). 
B) $40,000 (land); $10,000 (inventory). 
C) $10,000 (land); $40,000 (inventory). 
D) $25,000 (land); $25,000 (inventory). 
E) None of these statements is correct. 
A) $40,000 (land); $40,000 (inventory). 
B) $40,000 (land); $10,000 (inventory). 
C) $10,000 (land); $40,000 (inventory). 
D) $25,000 (land); $25,000 (inventory). 
E) None of these statements is correct.

Question 12

Dan receives a proportionate nonliquidating distribution when the basis of his partnership interest is $30,000.The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500.Dan's basis in the noncash property is:

Accepted Answer

A) $26,500. 
B) $24,000. 
C) $20,000. 
D) $10,000. 
E) None of the above. 
A) $26,500. 
B) $24,000. 
C) $20,000. 
D) $10,000. 
E) None of the above.

Question 13

Fern, Inc., Ivy Inc., and Jason formed a general partnership.Fern owns a 50% interest and Ivy and Jason each own 25% interests.Fern, Inc.files its tax return on a July 1 - June 30 fiscal year; Ivy Inc.files on a September 1 - August 31 fiscal year; and Jason 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 a June 30 year-end because Fern, Inc.is a majority partner. 
C) The partnership can request permission from the IRS to use a January 31 fiscal year if it can establish that is a natural business year. 
D) The partnership cannot use the "least aggregate deferral" method to determine its taxable year. 
E) None of the above. 
A) The partnership must choose the calendar year because it has no principal partners. 
B) The partnership must choose a June 30 year-end because Fern, Inc.is a majority partner. 
C) The partnership can request permission from the IRS to use a January 31 fiscal year if it can establish that is a natural business year. 
D) The partnership cannot use the "least aggregate deferral" method to determine its taxable year. 
E) None of the above.

Question 14

William is a general partner in the WST partnership.During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000.William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.

Accepted Answer

A) True 
 B)False

Question 15

TEC Partners was formed during the current tax year.It incurred $10,000 of organizational expenses, $80,000 of startup expenses, and $5,000 of transfer taxes to retitle property contributed by a partner.The property had been held as MACRS property for ten years by the contributing partner, and had an adjusted basis to the partner of $300,000 and fair market value of $400,000. Which of the following statements is correct regarding these items?

Accepted Answer

A) TEC treats the contributed property as a new MACRS asset placed in service on the date the property title is transferred. 
B) TEC must amortize the $10,000 of organizational expenses over 180 months. 
C) TEC's startup expenses are amortized over 60 months. 
D) TEC must capitalize the transfer tax and treat if as a new asset placed in service on the date the property is contributed. 
E) None of the above statements are true. 
A) TEC treats the contributed property as a new MACRS asset placed in service on the date the property title is transferred. 
B) TEC must amortize the $10,000 of organizational expenses over 180 months. 
C) TEC's startup expenses are amortized over 60 months. 
D) TEC must capitalize the transfer tax and treat if as a new asset placed in service on the date the property is contributed. 
E) None of the above statements are true.

Question 16

On Form 1065, partners' capital accounts should be determined using the same method on Schedule L, Schedule M-2, and the Schedules K-1 prepared for the partners.

Accepted Answer

A) True 
 B)False

Question 17

Harry's basis in his partnership interest was $10,000 at the beginning of the tax year.For the year, his share of the partnership's loss was $8,000, and he also received a distribution of $4,000.Harry can deduct an $8,000 loss, and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate 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. 
E) All of the above are advantages of partnership taxation. 
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. 
E) All of the above are advantages of partnership taxation.

Question 19

Suzy owns a 30% interest in the JSD LLC.In liquidation of the entity, Suzy receives a proportionate distribution of $30,000 cash, inventory (basis of $16,000, fair market value of $18,000), and land (basis of $25,000, fair market value of $30,000).Suzy's basis in the entity immediately before the distribution was $80,000.As a result of the distribution, what is Suzy's basis in the inventory and land, and how much gain or loss does she recognize?

Accepted Answer

A) $0 basis in inventory; $25,000 basis in land; $0 gain or loss. 
B) $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss. 
C) $16,000 basis in inventory; $25,000 basis in land; $9,000 loss. 
D) $18,000 basis in inventory; $32,000 basis in land; $0 gain. 
E) $25,000 basis in inventory; $25,000 basis in land; $0 gain or loss. 
A) $0 basis in inventory; $25,000 basis in land; $0 gain or loss. 
B) $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss. 
C) $16,000 basis in inventory; $25,000 basis in land; $9,000 loss. 
D) $18,000 basis in inventory; $32,000 basis in land; $0 gain. 
E) $25,000 basis in inventory; $25,000 basis in land; $0 gain or loss.

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

When property is contributed to a partnership for a capital and profits interest, the holding period of the contributing partner's interest:

The JPM Partnership is a US-based manufacturing company.JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Dan receives a proportionate nonliquidating distribution when the basis of his partnership interest is $30,000.The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500.Dan's basis in the noncash property is:

On Form 1065, partners' capital accounts should be determined using the same method on Schedule L, Schedule M-2, and the Schedules K-1 prepared for the partners.

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

An Introduction to Taxation and Understanding 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-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

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

Alternative Minimum Tax

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

Income Taxation of Trusts and Estates

Filters

Exam 21: Partnerships

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

When property is contributed to a partnership for a capital and profits interest, the holding period of the contributing partner's interest:

The JPM Partnership is a US-based manufacturing company.JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Dan receives a proportionate nonliquidating distribution when the basis of his partnership interest is $30,000.The distribution consists of $10,000 in cash and property with an adjusted basis to the partnership of $24,000 and a fair market value of $26,500.Dan's basis in the noncash property is:

On Form 1065, partners' capital accounts should be determined using the same method on Schedule L, Schedule M-2, and the Schedules K-1 prepared for the partners.

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

An Introduction to Taxation and Understanding 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-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

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

Alternative Minimum Tax

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

Income Taxation of Trusts and Estates

Filters