Question 1

Which of the following is not an adjustment to the partners' basis in the partnership interest?

Accepted Answer

A) Increased by contributions the partner made to the partnership. 
B) Decreased by the amount of guaranteed payments the partner received from the partnership. 
C) Increased by the partner's share of tax-exempt income. 
D) Decreased by any decrease in the partner's share of partnership liabilities. 
E) Increased by the partner's share of separately stated income items. 
A) Increased by contributions the partner made to the partnership. 
B) Decreased by the amount of guaranteed payments the partner received from the partnership. 
C) Increased by the partner's share of tax-exempt income. 
D) Decreased by any decrease in the partner's share of partnership liabilities. 
E) Increased by the partner's share of separately stated income items.

Question 2

In a proportionate liquidating distribution,Lina receives a distribution of $10,000 cash,accounts receivable (basis of $0 and fair market value of $12,000),and inventory (basis of $30,000 and fair market value of $40,000).Lina's basis in the entity immediately before the distribution was $80,000.As a result of the distribution,what is Lina's basis in the accounts receivable and inventory,and how much gain or loss does she recognize?

Accepted Answer

A) $0 basis in accounts receivable;$30,000 basis in inventory;$40,000 loss. 
B) $0 basis in accounts receivable;$70,000 basis in inventory;$0 gain or loss. 
C) $0 basis in accounts receivable;$40,000 basis in inventory;$50,000 loss. 
D) $12,000 basis in accounts receivable;$30,000 basis in inventory;$28,000 gain. 
E) $12,000 basis in accounts receivable;$40,000 basis in inventory;$18,000 gain. 
A) $0 basis in accounts receivable;$30,000 basis in inventory;$40,000 loss. 
B) $0 basis in accounts receivable;$70,000 basis in inventory;$0 gain or loss. 
C) $0 basis in accounts receivable;$40,000 basis in inventory;$50,000 loss. 
D) $12,000 basis in accounts receivable;$30,000 basis in inventory;$28,000 gain. 
E) $12,000 basis in accounts receivable;$40,000 basis in inventory;$18,000 gain.

Question 3

John and Ken formed the equal JK Partnership during the current year,with John contributing $50,000 in cash and Ken contributing land (basis of $30,000,fair market value of $20,000)and equipment (basis of $0,fair market value of $30,000).Ken recognizes no gain or loss on the contribution and his basis in his partnership interest is $30,000.

Accepted Answer

A) True 
 B)False

Question 4

Jeremy receives a proportionate nonliquidating distribution from the JKL Partnership when the basis of his interest is $100,000.The distribution consists of cash of $25,000,land with a basis of $30,000 and a fair market value of $65,000,and inventory with a partnership basis of $50,000 and fair market value of $60,000.As a result of this distribution,Jeremy recognizes a $50,000 gain and takes a $65,000 basis in the land and a $60,000 basis in the inventory.

Accepted Answer

A) True 
 B)False

Question 5

For Federal income tax purposes,a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Accepted Answer

A) True 
 B)False

Question 6

During the current year,ALF Partnership reported the following items of receipts and expenditures: $200,000 sales,$10,000 utilities,$12,000 rent,$50,000 salaries to employees,$30,000 guaranteed payment to partner Lloyd,investment interest income of $3,000,a charitable contribution of $5,000,and a distribution of $10,000 to partner Frank.Arnold is a 40% partner.What items will be reflected on Arnold's Schedule K-1?

Accepted Answer

The partnership's ordinary taxable incom

Question 7

In a proportionate nonliquidating distribution,cash is deemed to be distributed first,followed by capital assets and,last,unrealized receivables and inventory.

Accepted Answer

A) True 
 B)False

Question 8

In the current year,the POD Partnership received revenues of $100,000 and paid the following amounts: $20,000 in rent and utilities,and $10,000 as a distribution to partner Olivia.In addition,the partnership earned $4,000 of qualifying dividend income during the year.Partner Don owns a 50% interest in the partnership.How much income must Don report for the tax year?

Accepted Answer

A) $42,000 ordinary income. 
B) $37,000 ordinary income. 
C) $40,000 ordinary income;$2,000 of qualifying dividends. 
D) $35,000 ordinary income;$2,000 of qualifying dividends. 
E) None of the above. 
A) $42,000 ordinary income. 
B) $37,000 ordinary income. 
C) $40,000 ordinary income;$2,000 of qualifying dividends. 
D) $35,000 ordinary income;$2,000 of qualifying dividends. 
E) None of the above.

Question 9

Hardy's basis in his partnership interest was $5,000 at the beginning of the tax year.For the year,his share of the partnership's loss was $6,000,and he also received a distribution of $3,000.Hardy can deduct a $2,000 loss,and the remaining $4,000 loss is suspended until a year in which he has adequate basis.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following statements regarding partnership taxation is always correct?

Accepted Answer

A) A partnership is a taxable 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 not required to file a tax return. 
D) A partner's profit-sharing ratio will equal the partner's capital-sharing ratio. 
E) None of these statements are correct. 
A) A partnership is a taxable 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 not required to file a tax return. 
D) A partner's profit-sharing ratio will equal the partner's capital-sharing ratio. 
E) None of these statements are correct.

Question 11

Jim and Marta created the JM Partnership by contributing $60,000 each.The $120,000 cash was used by the partnership to acquire a depreciable asset.The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg.§ 1.704-1(b)(the "economic effect" Regulations)and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated.The partnership agreement provides that MACRS will be allocated 10% to Jim and 90% to Marta.All other items of partnership income,gain,loss,deduction,and credit will be allocated equally between the partners.In the first year,MACRS is $20,000 and no other operating transactions occur.The property is sold at the end of the year for $100,000 and the partnership is liquidated immediately thereafter.
To satisfy the economic effect test,how much of the $100,000 cash (from the sale)is allocated each to Jim and Marta?

Accepted Answer

Distributions upon liquidation must foll

Question 12

Paul is a 25% owner in the DDBP LLC (a calendar year entity).At the end of the last tax year,Paul's basis in his interest was $40,000,including his $10,000 share of LLC liabilities.On July 1 of the current tax year,Paul sells his LLC interest to Lee Anna for $50,000 cash.In addition,Lee Anna assumes Paul's share of LLC liabilities,which,at that date,was $15,000.During the current tax year,DDBP's taxable income is $100,000 (earned evenly during the year).Paul's share of the LLC's unrealized receivables is valued at $5,000 ($0 basis).At the sale date,what is Paul's basis in his LLC interest,how much gain or loss must he recognize,and what is the character of the gain or loss?

Accepted Answer

A) $65,000 basis;no gain or loss. 
B) $65,000 basis;$15,000 capital gain. 
C) $57,500 basis;$2,500 ordinary income and $5,000 capital loss. 
D) $57,500 basis;$5,000 ordinary income and $2,500 capital gain. 
E) $55,000 basis;$5,000 capital loss. 
A) $65,000 basis;no gain or loss. 
B) $65,000 basis;$15,000 capital gain. 
C) $57,500 basis;$2,500 ordinary income and $5,000 capital loss. 
D) $57,500 basis;$5,000 ordinary income and $2,500 capital gain. 
E) $55,000 basis;$5,000 capital loss.

Question 13

Geneva receives a proportionate nonliquidating distribution from the EFG Partnership.The distribution consists of $10,000 cash and property (adjusted basis to the partnership of $34,000 and fair market value of $42,000).Immediately before the distribution,Geneva's adjusted basis in the partnership interest was $60,000.Her basis in the noncash property received is:

Accepted Answer

A) $10,000. 
B) $34,000. 
C) $42,000. 
D) $50,000. 
E) $60,000. 
A) $10,000. 
B) $34,000. 
C) $42,000. 
D) $50,000. 
E) $60,000.

Question 14

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 15

Which of the following is not true regarding a limited liability company?

Accepted Answer

A) The Code does not specifically provide for the taxation of limited liability companies.Therefore,an LLC that is taxed as a partnership must rely primarily on the tax provisions that apply to partnerships. 
B) Under the "check the box" regulations,a domestic,two-owner unincorporated business organization,such as an LLC,is taxed as a partnership unless the owners elect otherwise. 
C) An LLC offers several advantages over the S corporation,including not making the managing member of the LLC liable for self-employment taxes on his or her share of LLC income. 
D) The economic benefits of an LLC may be reduced if lenders require owners to personally guarantee LLC debts. 
E) In general,an LLC member is not personally liable for LLC debts. 
A) The Code does not specifically provide for the taxation of limited liability companies.Therefore,an LLC that is taxed as a partnership must rely primarily on the tax provisions that apply to partnerships. 
B) Under the "check the box" regulations,a domestic,two-owner unincorporated business organization,such as an LLC,is taxed as a partnership unless the owners elect otherwise. 
C) An LLC offers several advantages over the S corporation,including not making the managing member of the LLC liable for self-employment taxes on his or her share of LLC income. 
D) The economic benefits of an LLC may be reduced if lenders require owners to personally guarantee LLC debts. 
E) In general,an LLC member is not personally liable for LLC debts.

Question 16

Michelle and Jacob formed the MJ Partnership.Michelle contributed $20,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations,the following events occurred: the partnership had a net taxable income of $10,000;Michelle received a distribution of $8,000 cash from the partnership;and Michelle had a 50% share in the partnership's $16,000 of recourse liabilities on the last day of the partnership year.Michelle's adjusted basis for her partnership interest at year end is:

Accepted Answer

A) $17,000. 
B) $20,000. 
C) $25,000. 
D) $33,000. 
E) $38,000. 
A) $17,000. 
B) $20,000. 
C) $25,000. 
D) $33,000. 
E) $38,000.

Question 17

Carl receives a proportionate nonliquidating distribution when the basis of his partnership interest is $60,000.The distribution consists of $20,000 in cash and property with an adjusted basis to the partnership of $35,000 and a fair market value of $40,000.Carl's basis in the noncash property and his remaining basis in the partnership interest are:

Accepted Answer

A) $60,000;$0. 
B) $35,000;$0. 
C) $35,000;$5,000. 
D) $40,000;$5,000. 
E) None of the above. 
A) $60,000;$0. 
B) $35,000;$0. 
C) $35,000;$5,000. 
D) $40,000;$5,000. 
E) None of the above.

Question 18

Wendy receives a proportionate nonliquidating distribution from the WXY Partnership.The distribution consists of $75,000 cash and property with an adjusted basis to the partnership of $20,000 and a fair market value of $25,000.Immediately before the distribution,Wendy's adjusted basis for her partnership interest is $90,000.Wendy's basis in the noncash property received is:

Accepted Answer

A) $0. 
B) $15,000. 
C) $20,000. 
D) $25,000. 
E) None of the above. 
A) $0. 
B) $15,000. 
C) $20,000. 
D) $25,000. 
E) None of the above.

Question 19

Holly and Marcus formed a partnership.Holly received a 50% interest in partnership capital and profits in exchange for contributing land (basis of $20,000 and fair market value of $100,000).Marcus received a 50% interest in partnership capital and profits in exchange for contributing $100,000 of cash.Three years after the contribution date,the land contributed by Holly is sold by the partnership to a third party for $120,000.How much taxable gain will Holly recognize from the sale?

Accepted Answer

A) $50,000. 
B) $90,000. 
C) $100,000. 
D) $120,000. 
E) $0. 
A) $50,000. 
B) $90,000. 
C) $100,000. 
D) $120,000. 
E) $0.

Question 20

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

Which of the following is not an adjustment to the partners' basis in the partnership interest?

For Federal income tax purposes,a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

In a proportionate nonliquidating distribution,cash is deemed to be distributed first,followed by capital assets and,last,unrealized receivables and inventory.

Which one of the following statements regarding partnership taxation is always correct?

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

Which of the following is not true regarding a limited liability company?

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

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

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

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

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

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

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

Which of the following is not an adjustment to the partners' basis in the partnership interest?

For Federal income tax purposes,a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

In a proportionate nonliquidating distribution,cash is deemed to be distributed first,followed by capital assets and,last,unrealized receivables and inventory.

Which one of the following statements regarding partnership taxation is always correct?

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

Which of the following is not true regarding a limited liability company?

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

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

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

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

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

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

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