Question 1

Match each of the following statements with the terms below that provide the best definition
-Profits interest

Accepted Answer

A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided. 
A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided.

Question 2

Match each of the following statements with the terms below that provide the best definition
-General partnership

Accepted Answer

A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided. 
A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided.

Question 3

Sharon contributed property to the newly formed QRST Partnership. The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date. The property was also encumbered by a $120,000 nonrecourse debt, which was transferred to the partnership on that date. Another partner, Rochelle, shares 30% of the partnership income, gain, loss, deduction, and credit. Under IRS regulations, Rochelle's share of the nonrecourse debt for basis purposes is:

Accepted Answer

A)  $20,000. 
B)  $30,000. 
C)  $36,000. 
D)  $100,000. 
E)  $120,000. 
A)  $20,000. 
B)  $30,000. 
C)  $36,000. 
D)  $100,000. 
E)  $120,000.

Question 4

Jeordie and Kendis created the JK Partnership by contributing $100,000 each. The $200,000 cash was used by the partnership to acquire a depreciable asset. The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg. § 1.704-1(b) (the "economic effect" Regulations) and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated. The partnership agreement provides that MACRS will be allocated 20% to Jeordie and 80% to Kendis. All other items of partnership income, gain, loss, deduction, and credit will be allocated equally between the partners. In the first year, MACRS is $40,000 and no other operating transactions occur. The property is sold at the end of the year for $160,000 and the partnership is liquidated immediately thereafter.
To satisfy the economic effect test, how much of the $160,000 cash (from the sale) is allocated each to Jeordie and Kendis?

Accepted Answer

Distributions upon liquidation must foll

Question 5

Which of the following statements is always true regarding accounting methods available to a partnership?

Accepted Answer

A)  If a partnership is a tax shelter, it can use the cash method of accounting. 
B)  If a non-tax-shelter partnership had "average annual gross receipts" of less than $5 million in all prior years, it can use the cash method. 
C)  If a partnership has a partner that is a personal service corporation, it cannot use the cash method. 
D)  If a partnership has a partner that is a C corporation, it cannot use the cash method. 
E)  All of the above statements are false. 
A)  If a partnership is a tax shelter, it can use the cash method of accounting. 
B)  If a non-tax-shelter partnership had "average annual gross receipts" of less than $5 million in all prior years, it can use the cash method. 
C)  If a partnership has a partner that is a personal service corporation, it cannot use the cash method. 
D)  If a partnership has a partner that is a C corporation, it cannot use the cash method. 
E)  All of the above statements are false.

Question 6

If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.

Accepted Answer

A) True 
 B)False

Question 7

Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year. Her allocable share of LLC items are as follows: $20,000 of ordinary income, $2,000 tax-exempt interest income, and a $6,000 long-term capital gain. In addition, the LLC distributed $12,000 of cash to Emma during the year. Assuming the LLC had no liabilities at the beginning or the end of the year, Emma's ending basis in her LLC interest is $76,000.

Accepted Answer

A) True 
 B)False

Question 8

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2015. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Accepted Answer

A) True 
 B)False

Question 9

Match each of the following statements with the terms below that provide the best definition
-Entity concept

Accepted Answer

A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided. 
A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided.

Question 10

Match each of the following statements with the terms below that provide the best definition
-Economic effect test

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

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume the interest is not sold within two years after the time it is granted to the service partner.)

Accepted Answer

A)  A 10% interest in the capital of the partnership that will vest in 3 years. 
B)  A 20% interest in the future profits of the partnership received in exchange for future services to be performed for the partnership. 
C)  A 25% interest in the capital of the partnership where there are no restrictions on transferability of the interest. 
D)  A 30% interest in ongoing profits of the partnership where the partnership is not a publicly-traded partnership and the income stream is not assured. 
E)  All of the above. 
A)  A 10% interest in the capital of the partnership that will vest in 3 years. 
B)  A 20% interest in the future profits of the partnership received in exchange for future services to be performed for the partnership. 
C)  A 25% interest in the capital of the partnership where there are no restrictions on transferability of the interest. 
D)  A 30% interest in ongoing profits of the partnership where the partnership is not a publicly-traded partnership and the income stream is not assured. 
E)  All of the above.

Question 12

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner, regardless of whether or not distributed.

Accepted Answer

A) True 
 B)False

Question 13

Match each of the following statements with the terms below that provide the best definition
-Domestic production activities deduction

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 14

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Accepted Answer

A) True 
 B)False

Question 15

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Accepted Answer

A) True 
 B)False

Question 16

Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Also, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership.
​
As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

Accepted Answer

Because neither partner is a Subchapter

Question 17

Match each of the following statements with the terms below that provide the best definition
-Constructive liquidation scenario

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 18

At the beginning of the tax year, Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000. His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000. He also received a distribution from the partnership of $20,000 cash during the year. For the tax year, Zach will report:

Accepted Answer

A)  A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000. 
B)  An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000. 
C)  A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000. 
D)  An ordinary loss of $44,000 and a nontaxable distribution of $20,000. 
A)  A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000. 
B)  An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000. 
C)  A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000. 
D)  An ordinary loss of $44,000 and a nontaxable distribution of $20,000.

Question 19

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

Accepted Answer

A)  Depreciable property: the partnership treats the property as newly acquired depreciable property, and may claim a § 179 deduction. 
B)  Unrealized (cash-basis) receivables: the partnership will report a capital gain when the receivable is collected. 
C)  Inventory (in the partner's hands): the partnership reports ordinary income if the property is held as a capital asset and sold within five years of the contribution date. 
D)  Land valued at less than its basis: the partnership reports a § 1231 loss if the property is sold at a loss. 
E)  None of these statements is correct. 
A)  Depreciable property: the partnership treats the property as newly acquired depreciable property, and may claim a § 179 deduction. 
B)  Unrealized (cash-basis) receivables: the partnership will report a capital gain when the receivable is collected. 
C)  Inventory (in the partner's hands): the partnership reports ordinary income if the property is held as a capital asset and sold within five years of the contribution date. 
D)  Land valued at less than its basis: the partnership reports a § 1231 loss if the property is sold at a loss. 
E)  None of these statements is correct.

Question 20

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

Accepted Answer

A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided. 
A) Organizational choice of many large accounting firms. 
B) Partner's percentage allocation of current operating income. 
C) Might affect any two partners' tax liabilities in different ways. 
D) Brokerage and registration fees incurred for promoting and marketing partnership interests. 
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F)Must have at least one general and one limited partner.
G)All partners are jointly and severally liable for entity debts.
H)Theory treating the partner and partnership as separate economic units.
I)Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J)Partnership's basis in asset after tax-free contribution of asset to partnership.
K)Owners are "members."
L)Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M)Allows many unincorporated entities to select their Federal tax status.
N)No correct match provided.

Match each of the following statements with the terms below that provide the best definition -Profits interest

Match each of the following statements with the terms below that provide the best definition -General partnership

Which of the following statements is always true regarding accounting methods available to a partnership?

If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2015. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Match each of the following statements with the terms below that provide the best definition -Entity concept

Match each of the following statements with the terms below that provide the best definition -Economic effect test

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume the interest is not sold within two years after the time it is granted to the service partner.)

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner, regardless of whether or not distributed.

Match each of the following statements with the terms below that provide the best definition -Domestic production activities deduction

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Match each of the following statements with the terms below that provide the best definition -Constructive liquidation scenario

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

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

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

Match each of the following statements with the terms below that provide the best definition -Profits interest

Match each of the following statements with the terms below that provide the best definition -General partnership

Which of the following statements is always true regarding accounting methods available to a partnership?

If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2015. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Match each of the following statements with the terms below that provide the best definition -Entity concept

Match each of the following statements with the terms below that provide the best definition -Economic effect test

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume the interest is not sold within two years after the time it is granted to the service partner.)

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner, regardless of whether or not distributed.

Match each of the following statements with the terms below that provide the best definition -Domestic production activities deduction

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Match each of the following statements with the terms below that provide the best definition -Constructive liquidation scenario

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

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

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