Question 1

A partnership will take a carryover basis in an asset it acquires when:

Accepted Answer

A)  The partnership acquires the asset through a § 1031 like-kind exchange. 
B)  A partner owning 25% of partnership capital and profits sells the asset to the partnership. 
C)  The partnership leases the asset from a partner on a one-year lease. 
D)  The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a). 
E)  None of the above. 
A)  The partnership acquires the asset through a § 1031 like-kind exchange. 
B)  A partner owning 25% of partnership capital and profits sells the asset to the partnership. 
C)  The partnership leases the asset from a partner on a one-year lease. 
D)  The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a). 
E)  None of the above.

Question 2

Paul sells one parcel of land (basis of $100,000) for its fair market value of $160,000 to a partnership in which he owns a 60% capital interest. Paul held the land for investment purposes. The partnership is in the real estate development business, and will build residential housing (for sale to customers) on the land. Paul will recognize:

Accepted Answer

A)  $0 gain or loss. 
B)  $36,000 ordinary income. 
C)  $36,000 capital gain. 
D)  $60,000 ordinary income. 
E)  $60,000 capital gain. 
A)  $0 gain or loss. 
B)  $36,000 ordinary income. 
C)  $36,000 capital gain. 
D)  $60,000 ordinary income. 
E)  $60,000 capital gain.

Question 3

ABC LLC reported the following items on the LLC's Schedule K: ordinary income, $100,000; interest income, $3,000; long-term capital loss, ($4,000); charitable contributions, $1,000; post-1986 depreciation adjustment, $10,000; and cash distributions to partners, $50,000. How much will ABC show as net income (loss) on its Analysis of Income (Loss)?

Accepted Answer

A)  $68,000 
B)  $78,000 
C)  $95,000 
D)  $98,000 
E)  $102,000 
A)  $68,000 
B)  $78,000 
C)  $95,000 
D)  $98,000 
E)  $102,000

Question 4

Allison is a 40% partner in the BAM Partnership. At the beginning of the tax year, Allison's basis in the partnership interest was $100,000, including her share of partnership liabilities. During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners). In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee. At the end of the year, Allison's share of partnership liabilities decreased by $10,000. Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:

Accepted Answer

A)  $2,000. 
B)  $50,000. 
C)  $58,000. 
D)  $70,000. 
E)  None of the above. 
A)  $2,000. 
B)  $50,000. 
C)  $58,000. 
D)  $70,000. 
E)  None of the above.

Question 5

In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities, and $20,000 as a distribution to partner Olivia. In addition, the partnership earned $6,000 of long-term capital gains during the year. Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year?

Accepted Answer

A)  $68,000 ordinary income. 
B)  $78,000 ordinary income. 
C)  $65,000 ordinary income; $3,000 of long-term capital gains. 
D)  $75,000 ordinary income; $3,000 of long-term capital gains. 
E)  None of the above. 
A)  $68,000 ordinary income. 
B)  $78,000 ordinary income. 
C)  $65,000 ordinary income; $3,000 of long-term capital gains. 
D)  $75,000 ordinary income; $3,000 of long-term capital gains. 
E)  None of the above.

Question 6

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Accepted Answer

A)  A partnership typically has easier administrative and filing requirements than does a C corporation. 
B)  Partnership income is subject to a single level of taxation; corporate income is double taxed. 
C)  Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings. 
D)  Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation. 
E)  All of the above are advantages of partnership taxation. 
A)  A partnership typically has easier administrative and filing requirements than does a C corporation. 
B)  Partnership income is subject to a single level of taxation; corporate income is double taxed. 
C)  Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings. 
D)  Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation. 
E)  All of the above are advantages of partnership taxation.

Question 7

Match each of the following statements with the terms below that provide the best definition
-Startup costs

Accepted Answer

A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to "taxable income." 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Computation that determines the way recourse debt is shared.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided. 
A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to "taxable income." 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Computation that determines the way recourse debt is shared.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided.

Question 8

Sarah contributed fully depreciated ($0 basis) property valued at $50,000 to the RSTU Partnership in exchange for a 25% interest in partnership capital and profits. During the first year of partnership operations, RSTU had net taxable income of $200,000 and tax-exempt income of $4,000. The partnership distributed $10,000 cash to Sarah. Her share of partnership recourse liabilities on the last day of the partnership year was $20,000. What is Sarah's adjusted basis (outside basis) for her partnership interest at the end of the tax year?

Accepted Answer

$61,000. Sarah is a 25% partner and will

Question 9

Match each of the following statements with the terms below that provide the best definition
-Schedules M-1 or M-3

Accepted Answer

A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to "taxable income." 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Computation that determines the way recourse debt is shared.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided. 
A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to "taxable income." 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Computation that determines the way recourse debt is shared.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided.

Question 10

Match each of the following statements with the terms below that provide the best definition
-Partner's capital account

Accepted Answer

A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to "taxable income." 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Computation that determines the way recourse debt is shared.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided. 
A) Adjusted basis of each partnership asset. 
B) Operating expenses incurred after entity is formed but before it begins doing business. 
C) Each partner's basis in the partnership. 
D) Reconciles book income to "taxable income." 
E) Tax accounting election made by partnership.
F)Tax accounting calculation made by partner.
G)Tax accounting election made by partner.
H)Does not include liabilities.
I)Designed to prevent excessive deferral of taxation of partnership income.
J)Amount that may be received by partner for performance of services for the partnership.
K)Computation that determines the way recourse debt is shared.
L)Will eventually be allocated to partner making tax-free property contribution to partnership.
M)Partner's share of partnership items.
N)Must generally be satisfied by any allocation to the partners.
O)Justification for a tax year other than the required taxable year.
P)No correct match is provided.

Question 11

Misty and John formed the MJ Partnership. Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits. During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $20,000; Misty received a distribution of $12,000 cash from the partnership; and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year. Misty's adjusted basis for her partnership interest at year end is:

Accepted Answer

A)  $48,000. 
B)  $60,000. 
C)  $78,000. 
D)  $88,000. 
E)  $90,000. 
A)  $48,000. 
B)  $60,000. 
C)  $78,000. 
D)  $88,000. 
E)  $90,000.

Question 12

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

Accepted Answer

A) True 
 B)False

Question 13

In the current year, Derek formed an equal partnership with Cody. Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000. Derek also contributed $50,000 cash to the partnership. Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000. The land contributed by Derek was encumbered by a $60,000 nonrecourse debt. The land contributed by Cody was encumbered by $40,000 of nonrecourse debt. Assume the partners share debt equally. Immediately after the formation, what is the basis of Cody's partnership interest?

Accepted Answer

$90,000. Cody's basi

Question 14

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributes a parcel of this land (basis of $15,000) to a partnership, also to be held as inventory. The fair market value of the property is $12,000 at the contribution date. After three years, the partnership sells the land for $10,000. The partnership will recognize a $5,000 ordinary loss on sale of the property.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following entity owners cannot participate in management of the entity?

Accepted Answer

A)  A general partner in a general partnership. 
B)  A member of a limited liability company. 
C)  A partner in a limited liability partnership. 
D)  A limited partner in a limited liability limited partnership. 
E)  None of the above. 
A)  A general partner in a general partnership. 
B)  A member of a limited liability company. 
C)  A partner in a limited liability partnership. 
D)  A limited partner in a limited liability limited partnership. 
E)  None of the above.

Question 16

Nicholas, a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year, received a guaranteed payment in the current year of $50,000. Partnership income before consideration of the guaranteed payment was $20,000. Nicholas reports a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is not a requirement of the substantial economic effect test?

Accepted Answer

A)  Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions. 
B)  An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the partner's capital account balance. 
C)  A partner with a negative capital account balance must "restore" that capital account, generally by contributing cash to the partnership. 
D)  On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) capital account balance. 
E)  All of the above statements are requirements of the substantial economic effect test. 
A)  Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions. 
B)  An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the partner's capital account balance. 
C)  A partner with a negative capital account balance must "restore" that capital account, generally by contributing cash to the partnership. 
D)  On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) capital account balance. 
E)  All of the above statements are requirements of the substantial economic effect test.

Question 18

Rebecca is a limited partner in the RST Partnership, which is not publicly traded. Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is ($60,000). Rebecca has a $40,000 adjusted basis (outside basis) for her interest in RST (before deduction of any of the passive losses). Her amount "at risk" under § 465 is $30,000 (before deduction of any of the passive losses). She also has $25,000 of passive income from other sources. How much of her ($60,000) allocable loss can Rebecca deduct on her current year's tax return?

Accepted Answer

A)  $25,000 
B)  $30,000 
C)  $40,000 
D)  $60,000 
E)  None of the above 
A)  $25,000 
B)  $30,000 
C)  $40,000 
D)  $60,000 
E)  None of the above

Question 19

The partnership reports each partner's share of income to the partner on a Form 1099-MISC.

Accepted Answer

A) True 
 B)False

Question 20

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits. During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000. The partnership distributed $10,000 cash to Binita. Binita's adjusted basis (outside basis) for her partnership interest at year-end is:

Accepted Answer

A)  $36,000. 
B)  $38,000. 
C)  $60,000. 
D)  $70,000. 
E)  None of the above. 
A)  $36,000. 
B)  $38,000. 
C)  $60,000. 
D)  $70,000. 
E)  None of the above.

A partnership will take a carryover basis in an asset it acquires when:

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Match each of the following statements with the terms below that provide the best definition -Startup costs

Match each of the following statements with the terms below that provide the best definition -Schedules M-1 or M-3

Match each of the following statements with the terms below that provide the best definition -Partner's capital account

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

Which of the following entity owners cannot participate in management of the entity?

Which of the following statements is not a requirement of the substantial economic effect test?

The partnership reports each partner's share of income to the partner on a Form 1099-MISC.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 10: Partnerships: Formation, Operation, and Basis

A partnership will take a carryover basis in an asset it acquires when:

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Match each of the following statements with the terms below that provide the best definition -Startup costs

Match each of the following statements with the terms below that provide the best definition -Schedules M-1 or M-3

Match each of the following statements with the terms below that provide the best definition -Partner's capital account

Debt of a limited liability company is allocated among LLC members using the nonrecourse debt allocation rules unless an LLC member has personally guaranteed the debt.

Which of the following entity owners cannot participate in management of the entity?

Which of the following statements is not a requirement of the substantial economic effect test?

The partnership reports each partner's share of income to the partner on a Form 1099-MISC.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters