Question 1

When capital or Sec.1231 assets are transferred to a partnership in exchange for a partnership interest qualifying under Sec.721,the holding period for the partnership interest includes the holding period of the contributed property.

Accepted Answer

A) True 
 B)False

Question 2

Empire Corporation has operated as a C corporation for its first three years of existence because one of its shareholders disqualified it from electing S corporation status.That shareholder is now gone,and the remaining shareholders have elected S corporation status effective for the current year.Empire Corporation has one highly appreciated asset that it hopes to sell in the near future.How many years must elapse before the sale in order to avoid the built-in gains tax?

Accepted Answer

A) 3 years 
B) 5 years 
C) 7 years 
D) 10 years

Question 3

Because a partnership is a pass-through entity rather than a taxable entity,partnerships need not file tax returns.

Accepted Answer

A) True 
 B)False

Question 4

Richard has a 50% interest in a partnership,and he materially participates in the partnership's business.Richard's adjusted basis in the partnership was $60,000 at the beginning of the year,including his share of partnership liabilities.There were no distributions to Richard during the year.During the current year,the partnership borrowed $160,000 from a local bank to purchase equipment needed in the business.All of the partners are personally liable for all partnership debts.The partnership incurred a $320,000 loss this year.What amount can Richard claim as a loss from the partnership on his individual tax return this year?

Accepted Answer

A) $60,000 
B) $80,000 
C) $140,000 
D) $160,000

Question 5

Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land.The partnership had purchased the land five years ago for $20,000,but it is worth $28,000 at the time of the distribution.Ariel's predistribution basis is $17,000.How much income will Ariel recognize due to the distribution,and what is her basis in the land?

Accepted Answer

A)   
B)   
C)   
D)

Question 6

Although a partner's distributive share of income,deductions,losses,and credits is generally determined by partnership agreement,special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.

Accepted Answer

A) True 
 B)False

Question 7

All of the following statements are true regarding nonliquidating distributions of a partnership except

Accepted Answer

A) if money is distributed in excess of the partnership interest,the partner receiving the distribution has capital gain. 
B) in no circumstances will the partner or the partnership recognize gain or loss from a nonliquidating distribution. 
C) in no circumstances may the partner's basis in the partnership interest be reduced below zero as a result of a nonliquidating distribution. 
D) if,after money distributions reduce the partnership basis,the adjusted basis of distributed property does not exceed the partner's basis in the partnership interest,the basis of the distributed property carries over to the partner.

Question 8

Atiqa receives a nonliquidating distribution of land from her partnership.The partnership purchased the land five years ago for $20,000.At the time of the distribution,it is worth $28,000.Prior to the distribution,Atiqa's basis in her partnership interest is $37,000.Atiqa's basis in the distributed land and her post-distribution basis in her partnership interest are

Accepted Answer

A)   
B)   
C)   
D)

Question 9

Mark receives a nonliquidating distribution of $10,000 cash and a parcel of land having an adjusted basis of $18,000 and a fair market value of $25,000.
a.Mark's basis in his partnership interest prior to the distribution is $50,000.
(1)How much income will the partnership recognize due to the distribution?
(2)How much income will Mark recognize due to the distribution?
(3)What is Mark's basis in his partnership interest after the distribution ?
(4)What is Mark's basis in the land?
b.Assume Mark's basis in his partnership interest is instead $22,000 and redetermine the responses to questions (1)through (4).

Accepted Answer

The answer of Mark receives a nonliquidating distribution of $10,000...

Question 10

The corporate built-in gains tax does not apply to a corporation that has always been taxed as an S corporation.

Accepted Answer

A) True 
 B)False

Question 11

Martha transferred property with a FMV of $60,000 (adjusted basis $30,000),which is subject to a $40,000 mortgage in exchange for a one-third interest in a partnership.The partnership has no other liabilities.The partners of MNO own the partnership equally.The partnership's basis in the property contributed is

Accepted Answer

A) $0. 
B) $40,000. 
C) $30,000. 
D) $60,000.

Question 12

Which of the following will be separately stated by a partnership reporting its operations for the year to the IRS?

Accepted Answer

A) interest income 
B) Sec.1245 depreciation recapture 
C) bad debt expense 
D) None of the items will be separately stated.

Question 13

Guaranteed payments are not deductible by the partnership in arriving at partnership ordinary income but are included in the receiving partner's income.

Accepted Answer

A) True 
 B)False

Question 14

If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

Accepted Answer

A) True 
 B)False

Question 15

All the following are types of pass-through entities except

Accepted Answer

A) LLP. 
B) LLC. 
C) C corporations. 
D) S corporations.

Question 16

A partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

Accepted Answer

A) True 
 B)False

Question 17

What is the primary purpose of Form 1065,Partnership Tax Return?

Accepted Answer

The answer of What is the primary purpose of Form...

Question 18

Brittany receives a nonliquidating distribution of $48,000 cash from her partnership.Brittany's basis in her partnership interest prior to the distribution is $25,000.What are the tax consequences of the distribution?

Accepted Answer

A) $48,000 ordinary income; $25,000 partnership basis 
B) $48,000 nontaxable return of capital, ($23,000)partnership basis 
C) $25,000 nontaxable return of capital,capital gain of $23,000,$0 partnership basis 
D) $25,000 nontaxable return of capital,ordinary income of $23,000,$0 partnership basis

Question 19

All of the following could file partnership tax returns except

Accepted Answer

A) general partnership. 
B) limited liability partnership. 
C) limited liability company. 
D) single member limited liability company.

Question 20

A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.

Accepted Answer

A) True 
 B)False

Exam 33: Partnerships and S Corporations

When capital or Sec.1231 assets are transferred to a partnership in exchange for a partnership interest qualifying under Sec.721,the holding period for the partnership interest includes the holding period of the contributed property.

Because a partnership is a pass-through entity rather than a taxable entity,partnerships need not file tax returns.

Although a partner's distributive share of income,deductions,losses,and credits is generally determined by partnership agreement,special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.

All of the following statements are true regarding nonliquidating distributions of a partnership except

The corporate built-in gains tax does not apply to a corporation that has always been taxed as an S corporation.

Which of the following will be separately stated by a partnership reporting its operations for the year to the IRS?

Guaranteed payments are not deductible by the partnership in arriving at partnership ordinary income but are included in the receiving partner's income.

If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

All the following are types of pass-through entities except

A partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

What is the primary purpose of Form 1065,Partnership Tax Return?

Brittany receives a nonliquidating distribution of $48,000 cash from her partnership.Brittany's basis in her partnership interest prior to the distribution is $25,000.What are the tax consequences of the distribution?

All of the following could file partnership tax returns except

A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.