Question 1

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 2

On January 1,20X9,Mr.Blue and Mr.Grey each contributed $100,000 to form the B&G General Partnership.Their partnership agreement states that they will each receive a 50 percent profits and loss interest.The partnership agreement also provides that Mr.Blue will receive an annual $36,000 guaranteed payment.B&G began business on January 1,20X9.For its first taxable year,its accounting records contained the following information:
   The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30,20X9.B&G repaid $10,000 of the loan on December 15,20X9.Neither of the partners received a cash distribution from B&G in 20X9.
Complete the following table related to Mr.Blue's interest in B&G partnership:

Accepted Answer

See table below: @#IMG-DLM& Tax basis = Initial co

Question 3

This year,HPLC,LLC,was formed by H Inc.,P Inc.,L Inc.,and C Inc.Each member had an equal share in the LLC's capital.H Inc.,P Inc.,and L Inc.each had a 30 percent profits interest in the LLC,with C Inc.having a 10 percent profits interest.The members had the following tax year-ends: H Inc.[1/31],P Inc.[5/31],L Inc.[7/31],and C Inc.[10/31].What tax year-end must the LLC use?

Accepted Answer

A) 1/31. 
B) 5/31. 
C) 7/31. 
D) 10/31. 
A) 1/31. 
B) 5/31. 
C) 7/31. 
D) 10/31.

Question 4

Jay has a tax basis of $14,000 in his partnership interest at the beginning of the partnership tax year.The following amounts of partnership debt were allocated to Jay and are included in his beginning-of-the-year tax basis: (1)recourse debt-$3,000,(2)qualified nonrecourse debt-$1,000,and (3)nonrecourse debt-$500.There were no changes to the debt allocated to Jay during the tax year.If Jay is allocated a $15,000 loss for the current year,how much of the loss will be suspended under the tax basis and at-risk limitations?

Accepted Answer

A) $500,$1,000. 
B) $1,000,$500. 
C) $0,$0. 
D) $14,000,$1,000. 
A) $500,$1,000. 
B) $1,000,$500. 
C) $0,$0. 
D) $14,000,$1,000.

Question 5

Tax elections are rarely made at the partnership level.

Accepted Answer

A) True 
 B)False

Question 6

This year,Reggie's distributive share from Almonte Partnership includes $8,000 of interest income,$4,000 of dividend income,and $60,000 of ordinary business income.
A.Assume that Reggie materially participates in the partnership.How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax?
B.Assume that Reggie does not materially participate in the partnership.How much of his distributive share from Almonte Partnership is potentially subject to the net investment income tax?

Accepted Answer

A.If Reggie materially participates in t

Question 7

On January 1,X9,Gerald received his 50 percent profits and capital interest in High Air,LLC,in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage.High Air reported a $15,000 loss for its X9 calendar year.How much loss can Gerald deduct,and how much loss must he suspend if he only applies the tax basis loss limitation?

Accepted Answer

A) $0,$4,000. 
B) $0,$7,500. 
C) $0,$15,000. 
D) $4,000,$0. 
E) None of the choices are correct. 
A) $0,$4,000. 
B) $0,$7,500. 
C) $0,$15,000. 
D) $4,000,$0. 
E) None of the choices are correct.

Question 8

ER General Partnership,a medical supplies business,states in its partnership agreement that Erin and Ryan agree to split profits and losses according to a 40/60 ratio.Additionally,the partnership will provide Erin with a $15,000 guaranteed payment for services she provides to the partnership.ER Partnership reports the following revenues,expenses,gains,losses,and distributions for its current taxable year:
   *The land is a Section 1231 asset.
Given these items,answer the following questions:
A.Compute Erin's share of ordinary income (loss)and separately stated items.Include her self-employment income as a separately stated item.
B.Compute Erin's self-employment income,but assume ER Partnership is a limited partnership and Erin is a limited partner.
C.Compute Erin's self-employment income,but assume ER Partnership is an LLC and Erin is personally liable for half of the debt of the LLC.Apply the IRS's proposed regulations in formulating your answer.

Accepted Answer

A.Erin's share of ordinary income (loss)

Question 9

A partner can generally apply passive activity losses against passive activity income for the year.

Accepted Answer

A) True 
 B)False

Question 10

On 12/31/X4,Zoom,LLC,reported a $60,000 loss on its books.The items included in the loss computation were $30,000 in sales revenue,$15,000 in qualified dividends,$22,000 in cost of goods sold,$50,000 in charitable contributions,$20,000 in employee wages,and $13,000 of rent expense.How much ordinary business income (loss)will Zoom report on its X4 return?

Accepted Answer

A) ($8,000). 
B) ($25,000). 
C) ($60,000). 
D) ($95,000). 
A) ($8,000). 
B) ($25,000). 
C) ($60,000). 
D) ($95,000).

Question 11

Which of the following would not be classified as a separately stated item?

Accepted Answer

A) Short-term capital gains. 
B) Charitable contributions. 
C) MACRS depreciation expense. 
D) Guaranteed payments. 
A) Short-term capital gains. 
B) Charitable contributions. 
C) MACRS depreciation expense. 
D) Guaranteed payments.

Question 12

In what order are the loss limitations for partnerships applied?

Accepted Answer

A) Tax basis; at-risk amount; passive activity loss. 
B) Passive activity loss; tax basis; at-risk amount. 
C) Tax basis; passive activity loss; at-risk amount. 
D) At-risk amount; tax basis; passive activity loss. 
A) Tax basis; at-risk amount; passive activity loss. 
B) Passive activity loss; tax basis; at-risk amount. 
C) Tax basis; passive activity loss; at-risk amount. 
D) At-risk amount; tax basis; passive activity loss.

Question 13

Hilary had an outside basis in LTL General Partnership of $10,000 at the beginning of the year.LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000,a $10,000 reduction in Hilary's share of partnership debt,a cash distribution of $20,000,and tax-exempt income of $3,000.What is Hilary's adjusted basis at the end of the year?

Accepted Answer

A) ($12,000). 
B) ($9,000). 
C) $0. 
D) $15,000. 
E) $18,000. 
A) ($12,000). 
B) ($9,000). 
C) $0. 
D) $15,000. 
E) $18,000.

Question 14

What form does a partnership use when filing an annual informational return?

Accepted Answer

A) Form 1040. 
B) Form 1041. 
C) Form 1065. 
D) Form 1120. 
A) Form 1040. 
B) Form 1041. 
C) Form 1065. 
D) Form 1120.

Question 15

Which of the following items is subject to the net investment income tax when a partner is not 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) All of these choices are correct. 
A) Partner's distributive share of dividends. 
B) Partner's distributive share of interest. 
C) Partner's distributive share of ordinary business income. 
D) All of these choices are correct.

Question 16

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 17

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)Increase for share of ordinary business income,(2)Decrease for share of separately stated loss items,and (3)Decrease for distributions?

Accepted Answer

A) 1,3,2. 
B) 1,2,3. 
C) 3,1,2. 
D) 2,3,1. 
A) 1,3,2. 
B) 1,2,3. 
C) 3,1,2. 
D) 2,3,1.

Question 18

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 19

If a partner participates in partnership activities on a regular,continuous,and substantial basis,then the partnership's activities with respect to this individual partner are not considered passive.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements regarding capital and profits interests received for services contributed to a partnership is false?

Accepted Answer

A) The holding period of a capital or profits interest begins on the date the interest is received. 
B) Partners receiving capital interests must recognize the liquidation value of their capital interests as capital gain. 
C) Partners receiving only profits interests generally don't recognize income when the profits interest is received. 
D) Partners receiving only profits interests include their share of partnership debt in the tax basis of their partnership interest. 
A) The holding period of a capital or profits interest begins on the date the interest is received. 
B) Partners receiving capital interests must recognize the liquidation value of their capital interests as capital gain. 
C) Partners receiving only profits interests generally don't recognize income when the profits interest is received. 
D) Partners receiving only profits interests include their share of partnership debt in the tax basis of their partnership interest.

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

Tax elections are rarely made at the partnership level.

A partner can generally apply passive activity losses against passive activity income for the year.

Which of the following would not be classified as a separately stated item?

In what order are the loss limitations for partnerships applied?

What form does a partnership use when filing an annual informational return?

Which of the following items is subject to the net investment income tax when a partner is not a material participant in the partnership?

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

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)Increase for share of ordinary business income,(2)Decrease for share of separately stated loss items,and (3)Decrease for distributions?

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

If a partner participates in partnership activities on a regular,continuous,and substantial basis,then the partnership's activities with respect to this individual partner are not considered passive.

Which of the following statements regarding capital and profits interests received for services contributed to a partnership is false?

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

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

Tax elections are rarely made at the partnership level.

A partner can generally apply passive activity losses against passive activity income for the year.

Which of the following would not be classified as a separately stated item?

In what order are the loss limitations for partnerships applied?

What form does a partnership use when filing an annual informational return?

Which of the following items is subject to the net investment income tax when a partner is not a material participant in the partnership?

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

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)Increase for share of ordinary business income,(2)Decrease for share of separately stated loss items,and (3)Decrease for distributions?

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

If a partner participates in partnership activities on a regular,continuous,and substantial basis,then the partnership's activities with respect to this individual partner are not considered passive.

Which of the following statements regarding capital and profits interests received for services contributed to a partnership is false?

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