Question 1

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. D

Question 2

On June 12,20X9,Kevin,Chris,and Candy Corp.came together to form Scrumptious Sweets General Partnership.Now,Scrumptious Sweets must decide which tax year-end to use.Kevin and Chris have calendar year-ends and each holds a 35 percent profits and capital interest.However,Candy Corp.has a September 30th year-end and holds the remaining 30 percent profits and capital interest.What tax year-end must Scrumptious Sweets adopt,and what rule mandates this year-end?

Accepted Answer

Scrumptious Sweets must use a calendar year-end because that is the majority interest taxable year.Partnerships have a majority interest taxable year if one or more partners with the same taxable year own more than 50 percent of the profits and capital interests in the partnership.Since Kevin and Chris together own 70 percent of the profits and capital interests in Scrumptious Sweets and both have a calendar year-end,Scrumptious Sweets must also adopt a calendar year-end.

Question 3

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. C

Question 4

Lloyd and Harry,equal partners,form the Ant World Partnership.During the year,Ant World had the following revenue,expenses,gains,losses,and distributions:
   Given these items,what amount of ordinary business income (loss)and what separately stated items should be allocated to each partner for the year?

Accepted Answer

The amount of ordinary busines

Question 5

A partner's self-employment earnings (loss)may be affected by her share of ordinary business income (loss)and any guaranteed payments she receives.The impact of these amounts typically depends on the status of the partner.Which of the following statements correctly describes the effect these items have on the partner's self-employment earnings (loss)?

Accepted Answer

A) General partner-only guaranteed payments affect self-employment earnings (loss). 
B) General partner-ordinary business income (loss)and guaranteed payments affect self-employment earnings (loss). 
C) Limited partner-only guaranteed payments affect self-employment earnings (loss). 
D) Limited partner-only ordinary business income (loss)affects self-employment income (loss). 
E) Both general partner-ordinary business income (loss)and guaranteed payments affect self-employment earnings (loss)and limited partner-only guaranteed payments affect self-employment earnings (loss). 
A) General partner-only guaranteed payments affect self-employment earnings (loss). 
B) General partner-ordinary business income (loss)and guaranteed payments affect self-employment earnings (loss). 
C) Limited partner-only guaranteed payments affect self-employment earnings (loss). 
D) Limited partner-only ordinary business income (loss)affects self-employment income (loss). 
E) Both general partner-ordinary business income (loss)and guaranteed payments affect self-employment earnings (loss)and limited partner-only guaranteed payments affect self-employment earnings (loss).

Question 6

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 7

Which of the following does not adjust a partner's basis?

Accepted Answer

A) Ordinary business income (loss). 
B) Change in amount of partnership debt. 
C) Tax-exempt income. 
D) All of these choices adjust a partner's basis. 
A) Ordinary business income (loss). 
B) Change in amount of partnership debt. 
C) Tax-exempt income. 
D) All of these choices adjust a partner's basis.

Question 8

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 9

Sue and Andrew form SA general partnership.Each person receives an equal interest in the newly created partnership.Sue contributes $10,000 of cash and land with an FMV of $55,000.Her basis in the land is $20,000.Andrew contributes equipment with an FMV of $12,000 and a building with an FMV of $33,000.His basis in the equipment is $8,000,and his basis in the building is $20,000.How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

Accepted Answer

A) $0. 
B) $4,000. 
C) $48,000. 
D) $52,000. 
A) $0. 
B) $4,000. 
C) $48,000. 
D) $52,000.

Question 10

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

Question 11

On March 15,20X9,Troy,Peter,and Sarah formed Picture Perfect General Partnership.This partnership was created to sell a variety of cameras,picture frames,and other photography accessories.The following items were contributed by each partner in exchange for a one-third capital and profits interest:
Troy-cash of $3,000,inventory with an FMV and tax basis $5,000,and a building with an FMV of $8,000 and adjusted basis of $10,000.Additionally,the building is secured by a $10,000 mortgage.
Peter-cash of $5,000,accounts payable with an FMV and tax basis of $19,000,and land with an FMV and tax basis of $20,000.
Sarah-cash of $2,000,accounts receivable with an FMV and tax basis of $1,000,and equipment with an FMV of $26,000 and adjusted basis of $4,000.Also,the equipment is secured by a $23,000 note payable.
What is the partnership's inside basis in each asset? How much gain or loss must Picture Perfect recognize? Prepare Picture Perfect's balance sheet reflecting the partners' capital accounts on both a tax basis and 704(b)/FMV basis.

Accepted Answer

The inside basis of the assets to the pa

Question 12

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 13

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 14

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 15

A general partner's share of ordinary business income is similar to investment income; thus,a general partner only includes their guaranteed payments as self-employment income.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following does not represent a tax election available to either partners or partnerships?

Accepted Answer

A) Electing to change an accounting method. 
B) Electing to amortize organization costs. 
C) Electing to expense a portion of syndication costs. 
D) Electing to immediately expense depreciable property under Section 179. 
A) Electing to change an accounting method. 
B) Electing to amortize organization costs. 
C) Electing to expense a portion of syndication costs. 
D) Electing to immediately expense depreciable property under Section 179.

Question 17

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following would not be classified as a material participant in an activity?

Accepted Answer

A) An individual who participates more than 100 hours a year and whose participation is not less than any other individual's participation. 
B) An individual who participated in the activity for at least one of the preceding five taxable years. 
C) An individual who participates in an activity regularly,continuously,and substantially. 
D) An individual who participates in an activity for more than 500 hours a year. 
A) An individual who participates more than 100 hours a year and whose participation is not less than any other individual's participation. 
B) An individual who participated in the activity for at least one of the preceding five taxable years. 
C) An individual who participates in an activity regularly,continuously,and substantially. 
D) An individual who participates in an activity for more than 500 hours a year.

Question 19

How does a partnership make a tax election for the current year?

Accepted Answer

A) Partnerships make certain elections automatically by simply filing their returns. 
B) Partnerships make certain tax elections by filing a separate form with the IRS. 
C) Partnerships do not need to file anything to make a tax election. 
D) Partnerships do not make tax elections.Partners must make tax elections separately. 
E) Both partnerships make certain elections automatically by simply filing their returns and partnerships make certain tax elections by filing a separate form with the IRS. 
A) Partnerships make certain elections automatically by simply filing their returns. 
B) Partnerships make certain tax elections by filing a separate form with the IRS. 
C) Partnerships do not need to file anything to make a tax election. 
D) Partnerships do not make tax elections.Partners must make tax elections separately. 
E) Both partnerships make certain elections automatically by simply filing their returns and partnerships make certain tax elections by filing a separate form with the IRS.

Question 20

How does additional debt or relief of debt affect a partner's basis?

Accepted Answer

A) Debt has no effect on a partner's basis. 
B) Relief of debt increases a partner's basis. 
C) Both additional debt and relief of debt increase a partner's basis. 
D) Additional debt increases a partner's basis. 
A) Debt has no effect on a partner's basis. 
B) Relief of debt increases a partner's basis. 
C) Both additional debt and relief of debt increase a partner's basis. 
D) Additional debt increases a partner's 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?

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

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.

Which of the following does not adjust a partner's basis?

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.

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

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

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

A general partner's share of ordinary business income is similar to investment income; thus,a general partner only includes their guaranteed payments as self-employment income.

Which of the following does not represent a tax election available to either partners or partnerships?

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

Which of the following would not be classified as a material participant in an activity?

How does a partnership make a tax election for the current year?

How does additional debt or relief of debt affect a partner's basis?

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 Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 20: Forming and Operating Partnerships

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

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

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.

Which of the following does not adjust a partner's basis?

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.

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

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

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

A general partner's share of ordinary business income is similar to investment income; thus,a general partner only includes their guaranteed payments as self-employment income.

Which of the following does not represent a tax election available to either partners or partnerships?

Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.

Which of the following would not be classified as a material participant in an activity?

How does a partnership make a tax election for the current year?

How does additional debt or relief of debt affect a partner's basis?

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 Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters