Question 1

What is the difference between a partner's tax basis and at-risk amount?

Accepted Answer

A partner's tax basis is adjusted to include the impact of a variety of items.A partner's tax basis is affected by partner contributions, partner distributions, changes in the amount of partnership debt allocated to partners, a partner's share of tax-exempt income, a partner's share of nondeductible expenses, a partner's share of ordinary business income (loss), etc.A partner's at-risk amount is calculated in much the same way except that a partner's share of nonrecourse debt is generally not included in the at-risk amount.

Question 2

On April 18, 20X8, Robert sold his 35 percent partnership interest in Fruit Wonder, LLC, to Richard for $120,000.Prior to selling his interest, Robert had a basis in Fruit Wonder of $80,000.Robert's basis included $5,000 of recourse debt and $15,000 of nonrecourse debt that had been allocated to him.Immediately after the purchase, what is Richard's tax basis in Fruit Wonder?

Accepted Answer

$140,000.
Richard's tax basis would be equal to the amount he paid for his interest plus any debt allocated to Robert from the LLC.Thus, he would have a tax basis in his interest of $140,000 computed as follows: $120,000 purchase price + $5,000 recourse debt + $15,000 nonrecourse debt.

Question 3

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

Accepted Answer

A) True 
 B)False  False

Question 4

A partner's tax basis or at-risk amount can be increased by making capital contributions, by paying off partnership debt, or by increasing the profitability of the partnership.

Accepted Answer

A) True 
 B)False

Question 5

Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution.

Accepted Answer

A) True 
 B)False

Question 6

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

Accepted Answer

A) Passive activity income. 
B) Portfolio income. 
C) Active business income. 
D) Any of these types of income can be offset. 
E) None of the choices are correct.The suspended losses disappear when the passive activity is sold. 
A) Passive activity income. 
B) Portfolio income. 
C) Active business income. 
D) Any of these types of income can be offset. 
E) None of the choices are correct.The suspended losses disappear when the passive activity is sold.

Question 7

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses.

Accepted Answer

A partner's tax basis must be adjusted t

Question 8

The main difference between a partner's tax basis and at-risk amount is that qualified nonrecourse financing is not included in the at-risk basis amount.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true when property is contributed in exchange for a partnership interest?

Accepted Answer

A) Any contributed property in a partnership has a carryover basis, and the character of the property is determined by the way the contributing partner used the property. 
B) The partnership's inside basis is typically increased by any gain the partner recognizes from the property contribution. 
C) The holding period for a partner's partnership interest depends upon the type of assets a partner contributes. 
D) Services are not allowed to be contributed to a partnership in return for a partnership interest. 
E) All of these choices are true. 
A) Any contributed property in a partnership has a carryover basis, and the character of the property is determined by the way the contributing partner used the property. 
B) The partnership's inside basis is typically increased by any gain the partner recognizes from the property contribution. 
C) The holding period for a partner's partnership interest depends upon the type of assets a partner contributes. 
D) Services are not allowed to be contributed to a partnership in return for a partnership interest. 
E) All of these choices are true.

Question 10

In each of the independent scenarios below, how does the partner or partnership determine its holding period in the property received?
a.A partner contributes property in exchange for a partnership interest
b.The partnership receives contributed property
c.A partner contributes services in exchange for a partnership interest
d.A partner purchases a partnership interest from an existing partner

Accepted Answer

a.When a partner contributes property to

Question 11

Which of the following statements regarding the rationale for adjusting a partner's basis is false?

Accepted Answer

A) To prevent partners from being double taxed when they sell their partnership interests. 
B) To ensure that partnership tax-exempt income is not ultimately taxed. 
C) To prevent partners from being double taxed when they receive cash distributions. 
D) To ensure that partnership nondeductible expenses are never deductible. 
E) None of these rationales are false. 
A) To prevent partners from being double taxed when they sell their partnership interests. 
B) To ensure that partnership tax-exempt income is not ultimately taxed. 
C) To prevent partners from being double taxed when they receive cash distributions. 
D) To ensure that partnership nondeductible expenses are never deductible. 
E) None of these rationales are false.

Question 12

Which of the following entities is not considered a flow-through entity?

Accepted Answer

A) C corporation. 
B) S corporation. 
C) Limited liability company (LL
C) . 
D) Partnership. 
A) C corporation. 
B) S corporation. 
C) Limited liability company (LL
C) . 
D) Partnership.

Question 13

Tim, a real estate investor, Ken, a dealer in securities, and Hardware, Inc., a retail lumber store, form a partnership called HKT, LP.HKT is in the home-building business.Tim recently purchased his interest in HKT, while the other partners purchased their interests several years ago.During X3, HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes.Which of the following statements best represents how their portion of the gain should be reported to the partner?

Accepted Answer

A) Tim-Short-term capital gain. 
B) Ken-Ordinary Income. 
C) Hardware, Inc.-Long-term capital gain. 
D) All of the choices accurately report the gain to the partner. 
E) None of the choices accurately report the gain to the partner. 
A) Tim-Short-term capital gain. 
B) Ken-Ordinary Income. 
C) Hardware, Inc.-Long-term capital gain. 
D) All of the choices accurately report the gain to the partner. 
E) None of the choices accurately report the gain to the partner.

Question 14

Sarah, Sue, and AS Inc.formed a partnership on May 1, 20X9, called SSAS, LP.Now that the partnership is formed, they must determine its appropriate year-end.Sarah has a 30 percent profits and capital interest while Sue has a 35 percent profits and capital interest.Both Sarah and Sue have calendar year-ends.AS Inc.holds the remaining profits and capital interest in the LP, and it has a September 30 year-end.What tax year-end must SSAS, LP, use for 20X9, and which test or rule requires this year-end?

Accepted Answer

A) 12/31, least aggregate deferral test. 
B) 9/30, majority interest taxable year. 
C) 12/31, majority interest taxable year. 
D) 12/31, principal partners test. 
A) 12/31, least aggregate deferral test. 
B) 9/30, majority interest taxable year. 
C) 12/31, majority interest taxable year. 
D) 12/31, principal partners test.

Question 15

Partnership tax rules incorporate both the entity and aggregate approaches.

Accepted Answer

A) True 
 B)False

Question 16

A partnership can elect to amortize organization and start-up costs; however, syndication costs are not deductible.

Accepted Answer

A) True 
 B)False

Question 17

Peter, Matt, Priscilla, and Mary began the year in the PMPM General Partnership sharing profits, losses, and capital equally.They had a tax basis at the beginning of the year of $3,000, $10,000, $8,000, and $11,000, respectively.Early in the year, Mary provided general consulting services to the partnership and received an additional 15 percent profits, losses, and capital interest in the partnership.The liquidation value of her additional interest was $45,000.Later the same year, the partnership received cash contributions of $25,000 from Peter and Matt that it used to repay the partnership's $35,000 recourse debt.According to state law, the partners shared responsibility for this debt in accordance with their loss-sharing ratios.What is each partner's tax basis after adjustment for these transactions?

Accepted Answer

Each partner's tax basis calculations ar

Question 18

John, a limited partner of Candy Apple, LP, is allocated $30,000 of ordinary business loss from the partnership.Before the loss allocation, his tax basis is $20,000 and his at-risk amount is $10,000.John also has ordinary business income of $20,000 from Sweet Pea, LP, as a general partner and ordinary business income of $5,000 from Red Tomato as a limited partner.How much of the $30,000 loss from Candy Apple can John deduct currently?

Accepted Answer

A) $5,000. 
B) $10,000. 
C) $25,000. 
D) $30,000. 
A) $5,000. 
B) $10,000. 
C) $25,000. 
D) $30,000.

Question 19

Zinc, LP was formed on August 1, 20X9.When the partnership was formed, Al contributed $10,000 in cash and inventory with an FMV and tax basis of $40,000.In addition, Bill contributed equipment with an FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with an FMV and tax basis of $20,000.Also, Chad contributed land with an FMV of $50,000 and tax basis of $35,000.Finally, Dave contributed a machine, secured by $35,000 of debt, with an FMV of $15,000 and a tax basis of $10,000.What is the total inside basis of all the assets contributed to Zinc, LP?

Accepted Answer

A) $140,000. 
B) $165,000. 
C) $175,000. 
D) $200,000. 
A) $140,000. 
B) $165,000. 
C) $175,000. 
D) $200,000.

Question 20

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

Accepted Answer

A) Yes, if this basis adjustment is not made, the partner will be taxed once when the income is allocated to him and a second time when he sells his partnership interest. 
B) Yes, if this basis adjustment is not made, the partner will be taxed on the tax-exempt income when he sells his partnership interest and again if the tax-exempt income exceeds $10,000. 
C) No, making this adjustment to the partner's basis prevents the tax-exempt income from being converted to taxable income. 
D) No, the partner should not adjust his tax basis by his share of tax-exempt income. 
A) Yes, if this basis adjustment is not made, the partner will be taxed once when the income is allocated to him and a second time when he sells his partnership interest. 
B) Yes, if this basis adjustment is not made, the partner will be taxed on the tax-exempt income when he sells his partnership interest and again if the tax-exempt income exceeds $10,000. 
C) No, making this adjustment to the partner's basis prevents the tax-exempt income from being converted to taxable income. 
D) No, the partner should not adjust his tax basis by his share of tax-exempt income.

What is the difference between a partner's tax basis and at-risk amount?

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

A partner's tax basis or at-risk amount can be increased by making capital contributions, by paying off partnership debt, or by increasing the profitability of the partnership.

Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution.

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses.

The main difference between a partner's tax basis and at-risk amount is that qualified nonrecourse financing is not included in the at-risk basis amount.

Which of the following statements is true when property is contributed in exchange for a partnership interest?

Which of the following statements regarding the rationale for adjusting a partner's basis is false?

Which of the following entities is not considered a flow-through entity?

Partnership tax rules incorporate both the entity and aggregate approaches.

A partnership can elect to amortize organization and start-up costs; however, syndication costs are not deductible.

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters

Exam 15: Forming and Operating Partnerships

What is the difference between a partner's tax basis and at-risk amount?

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

A partner's tax basis or at-risk amount can be increased by making capital contributions, by paying off partnership debt, or by increasing the profitability of the partnership.

Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution.

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses.

The main difference between a partner's tax basis and at-risk amount is that qualified nonrecourse financing is not included in the at-risk basis amount.

Which of the following statements is true when property is contributed in exchange for a partnership interest?

Which of the following statements regarding the rationale for adjusting a partner's basis is false?

Which of the following entities is not considered a flow-through entity?

Partnership tax rules incorporate both the entity and aggregate approaches.

A partnership can elect to amortize organization and start-up costs; however, syndication costs are not deductible.

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters