Question 1

What general accounting methods may be used by a partnership, and how and by whom are they selected?

Accepted Answer

A partnership generally has the option o

Question 2

Which of the following statements regarding partnership losses suspended by the tax basis limitation is true?

Accepted Answer

A)  Partnership losses must be used only in the year the losses are created. 
B)  Partnership losses may be carried back two years and carried forward five years. 
C)  Partnership losses may be carried forward indefinitely. 
D)  Partnership losses may be carried back two years and carried forward 20 years. 
A)  Partnership losses must be used only in the year the losses are created. 
B)  Partnership losses may be carried back two years and carried forward five years. 
C)  Partnership losses may be carried forward indefinitely. 
D)  Partnership losses may be carried back two years and carried forward 20 years.

Question 3

Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

Accepted Answer

A)  $6,000. 
B)  $9,000. 
C)  $21,000. 
D)  $24,000. 
A)  $6,000. 
B)  $9,000. 
C)  $21,000. 
D)  $24,000.

Question 4

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 5

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Accepted Answer

A) True 
 B)False

Question 6

Tax elections are rarely made at the partnership level.

Accepted Answer

A) True 
 B)False

Question 7

Partnerships may maintain their capital accounts according to which of the following rules?

Accepted Answer

A)  GAAP. 
B)  704(b). 
C)  Tax. 
D)  Any of the rules. 
E)  Only GAAP and 704(b). 
A)  GAAP. 
B)  704(b). 
C)  Tax. 
D)  Any of the rules. 
E)  Only GAAP and 704(b).

Question 8

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

Accepted Answer

A) True 
 B)False

Question 9

Jerry, a partner with 30 percent capital and profits interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry's tax basis in his partnership interest was $50,000. His current-year Schedule K-1 reported an ordinary loss of $15,000, long-term capital gain of $3,000, qualified dividends of $2,000, $500 of non-deductible expenses, a $10,000 cash contribution, and a reduction of $4,000 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?

Accepted Answer

A)  $35,000. 
B)  $40,000. 
C)  $45,500. 
D)  $49,500. 
A)  $35,000. 
B)  $40,000. 
C)  $45,500. 
D)  $49,500.

Question 10

Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has an FMV of $45,000 and an adjusted basis of $30,000 and is secured by a $35,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

Accepted Answer

A)  $37,500. 
B)  $40,000. 
C)  $42,500. 
D)  $45,000. 
A)  $37,500. 
B)  $40,000. 
C)  $42,500. 
D)  $45,000.

Question 11

Partners adjust their outside basis by adding nondeductible expenses and subtracting any tax-exempt income to avoid being double taxed.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following items will affect a partner's tax basis?

Accepted Answer

A)  Share of ordinary business income (loss). 
B)  Share of nonrecourse debt. 
C)  Share of recourse debt. 
D)  Share of qualified nonrecourse debt. 
E)  All of these choices will affect a partner's tax basis. 
A)  Share of ordinary business income (loss). 
B)  Share of nonrecourse debt. 
C)  Share of recourse debt. 
D)  Share of qualified nonrecourse debt. 
E)  All of these choices will affect a partner's tax basis.

Question 13

Which of the following items is subject to the net investment income tax when an individual partner is a material participant in the partnership?

Accepted Answer

A)  Partner's distributive share of dividends. 
B)  Partner's distributive share of interest. 
C)  Partner's distributive share of ordinary business income. 
D)  Both partner's distributive share of dividends and partner's distributive share of interest. 
A)  Partner's distributive share of dividends. 
B)  Partner's distributive share of interest. 
C)  Partner's distributive share of ordinary business income. 
D)  Both partner's distributive share of dividends and partner's distributive share of interest.

Question 14

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 15

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately stated item for the partners that receive the payment?

Accepted Answer

Guaranteed payments are conceptually sim

Question 16

TQK, LLC, provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc., each hold a 50 percent capital and profits interest in TQK. If TQK averaged $27,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

Accepted Answer

A)  Accrual method. 
B)  Cash method. 
C)  Hybrid method. 
D)  Accrual method or cash method. 
A)  Accrual method. 
B)  Cash method. 
C)  Hybrid method. 
D)  Accrual method or cash method.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

Accepted Answer

A)  Recourse-profit-sharing ratios; nonrecourse-profit-sharing ratios. 
B)  Recourse-capital ratios; nonrecourse-capital ratios. 
C)  Recourse-to partners with the ultimate responsibility for paying the debt; nonrecourse-profit-sharing ratios. 
D)  Recourse-profit-sharing ratios; nonrecourse-to partners with the ultimate responsibility for paying the debt. 
A)  Recourse-profit-sharing ratios; nonrecourse-profit-sharing ratios. 
B)  Recourse-capital ratios; nonrecourse-capital ratios. 
C)  Recourse-to partners with the ultimate responsibility for paying the debt; nonrecourse-profit-sharing ratios. 
D)  Recourse-profit-sharing ratios; nonrecourse-to partners with the ultimate responsibility for paying the debt.

Question 20

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Accepted Answer

A) True 
 B)False

What general accounting methods may be used by a partnership, and how and by whom are they selected?

Which of the following statements regarding partnership losses suspended by the tax basis limitation is true?

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

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Tax elections are rarely made at the partnership level.

Partnerships may maintain their capital accounts according to which of the following rules?

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

Partners adjust their outside basis by adding nondeductible expenses and subtracting any tax-exempt income to avoid being double taxed.

Which of the following items will affect a partner's tax basis?

Which of the following items is subject to the net investment income tax when an individual partner is a material participant in the partnership?

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately stated item for the partners that receive the payment?

TQK, LLC, provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc., each hold a 50 percent capital and profits interest in TQK. If TQK averaged $27,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

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

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?

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 9: Forming and Operating Partnerships

What general accounting methods may be used by a partnership, and how and by whom are they selected?

Which of the following statements regarding partnership losses suspended by the tax basis limitation is true?

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

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Tax elections are rarely made at the partnership level.

Partnerships may maintain their capital accounts according to which of the following rules?

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

Partners adjust their outside basis by adding nondeductible expenses and subtracting any tax-exempt income to avoid being double taxed.

Which of the following items will affect a partner's tax basis?

Which of the following items is subject to the net investment income tax when an individual partner is a material participant in the partnership?

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately stated item for the partners that receive the payment?

TQK, LLC, provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc., each hold a 50 percent capital and profits interest in TQK. If TQK averaged $27,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

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

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?

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters