Question 1

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation 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. 
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.

Question 2

Maria owns a 60% interest in the KLM Partnership. Four years ago, her father gave her a parcel of land. The gift basis of the land to Maria is $60,000. In the current year, Maria had still not figured out how to use the land for her own personal or business use; consequently, she sold it to the partnership for $50,000. The partnership immediately started using the land as a parking lot for its employees. Maria may recognize her $10,000 loss on the sale.

Accepted Answer

A) True 
 B)False

Question 3

A partnership is an association formed by two or more taxpayers which may be any type of entity) to carry on a trade or business.

Accepted Answer

A) True 
 B)False

Question 4

Fern, Inc., Ivy, Inc., and Jeremy formed a general partnership. Fern owns a 50% interest, and Ivy and Jeremy both own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc., files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose?

Accepted Answer

A)  The partnership must choose the calendar year because it has no principal partners. 
B)  The partnership must choose an October year-end because Fern, Inc., is a principal partner. 
C)  The partnership can request permission from the IRS to use a January 31 fiscal year under § 444. 
D)  The partnership must use the least aggregate deferral method to determine its required taxable year. 
A)  The partnership must choose the calendar year because it has no principal partners. 
B)  The partnership must choose an October year-end because Fern, Inc., is a principal partner. 
C)  The partnership can request permission from the IRS to use a January 31 fiscal year under § 444. 
D)  The partnership must use the least aggregate deferral method to determine its required taxable year.

Question 5

Allison is a 40% partner in the BAM Partnership. At the beginning of the tax year, her 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. 
A)  $2,000. 
B)  $50,000. 
C)  $58,000. 
D)  $70,000.

Question 6

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 that the partners share debt equally. Immediately after the formation, what is the basis of Cody's partnership interest?

Accepted Answer

The answer of In the current year, Derek formed an...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

SQRLY LLC has about 25 LLC members. SwanCo 30% owner) and QuinnCo 16% owner both have June 30 tax year-ends. Royce, Inc.; Larry, Inc.; and Yolanda, Inc. each own 4% 12% total) and have September 30 taxable year-ends. Each of the other LLC members 42% total) owns interests of 4% or less and use the calendar year December 31). Which of the following statements is true regarding the LLC's required taxable year end?

Accepted Answer

A)  The taxable year is determined under the least aggregate deferral rule. 
B)  The taxable year is determined under the majority interest rule because a majority of members have the same year-end. 
C)  The taxable year is determined under the principal partner rule because both SwanCo and QuinnCo have the same taxable year. 
D)  The taxable year ends on December 31 because more LLC members use a calendar year than any other year. 
E)  There is no required taxable year because there are more than 20 members. 
A)  The taxable year is determined under the least aggregate deferral rule. 
B)  The taxable year is determined under the majority interest rule because a majority of members have the same year-end. 
C)  The taxable year is determined under the principal partner rule because both SwanCo and QuinnCo have the same taxable year. 
D)  The taxable year ends on December 31 because more LLC members use a calendar year than any other year. 
E)  There is no required taxable year because there are more than 20 members.

Question 9

Patricia is a 25% owner and an active member in the PBK LLC, which operates a qualified trade or business for purposes of the deduction under § 199A. Patricia's distributive share of qualified income from the LLC is $250,000 for the year the LLC's income is $1,000,000). Her share of the LLC's W-2 wages is $40,000, and she received a guaranteed payment for services of $30,000. Her share of the LLC's unadjusted basis immediately after acquisition of qualified property is $1,200,000. How much is her qualified business income for this separate trade or business?

Accepted Answer

A)  $20,000. 
B)  $35,000. 
C)  $40,000. 
D)  $47,500. 
E)  $50,000. 
A)  $20,000. 
B)  $35,000. 
C)  $40,000. 
D)  $47,500. 
E)  $50,000.

Question 10

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 11

The MOP Partnership is involved in construction activities. On January 1 of the current year, Patricia has an adjusted basis of $600,000 for her partnership interest consisting of the following. $\begin{array}{lr}
\text { Capital account } & \$ 350,000 \
\text { Share of partnership recourse debt } & 50,000 \
\text { Share of partnership nonrecourse debt } & \underline{200,000} \
& \underline{\$ 600,000} \
\end{array}$
 During the year, the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patricia. Partnership liabilities were the same at the end of the tax year, and the nonrecourse debt is not qualified nonrecourse debt. If she owns a 60% share of partnership profits, capital, and losses, and is an active material) participant in the partnership, how much of her share of the operating loss can Patricia deduct? Assume that Patricia is a single
taxpayer and has no business losses from other sources.) What Code provisions could cause a suspension of the loss? How would your answer change if MOP were an LLC and Patricia had not personally guaranteed any of the debt?

Accepted Answer

Patricia can deduct only $250,000 of her

Question 12

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. 
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.

Question 13

Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash. Ashley received a $10,000 cash distribution from the partnership during the year, and her share of partnership income is
$15,000. Her share of partnership liabilities on the last day of the partnership year is $20,000. Ashley's outside basis for her partnership interest at the end of the year is $45,000.

Accepted Answer

A) True 
 B)False

Question 14

The LN partnership reported the following items of income and deduction during the current tax year: revenues,
$300,000; cost of goods sold, $160,000; tax-exempt interest income, $2,000; salaries to employees, $80,000; and long- term capital gain, $10,000. It paid business interest expense of $18,000 and investment interest expense of $2,000. In addition, the partnership distributed $20,000 of cash to 50% partner Nina and $10,000 of cash to 50% partner Len. What is Nina's share of ordinary partnership income and separately stated items?

Accepted Answer

@#IMG-DLM& The distributions to the part

Question 15

Which of the following is not shown on the partnership's Schedule K of Form 1065?

Accepted Answer

A)  The partnership's self-employment income. 
B)  The partnership's separately stated income and deductions. 
C)  The partnership's tax preference and adjustment items. 
D)  The partnership's net operating loss carryforward. 
E)  The partnership's investment portfolio) interest expense. 
A)  The partnership's self-employment income. 
B)  The partnership's separately stated income and deductions. 
C)  The partnership's tax preference and adjustment items. 
D)  The partnership's net operating loss carryforward. 
E)  The partnership's investment portfolio) interest expense.

Question 16

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)  All of these statements are always true. 
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)  All of these statements are always true.

Question 17

The total tax burden on entity income is greater for a partner in a partnership up to 37% for an individual partner) than on a shareholder in a corporation 21% for an individual shareholder), so partnerships are used only in special situations.

Accepted Answer

A) True 
 B)False

Question 18

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)Theory under which a partnership's recourse debt is shared among the partners.
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)Theory under which a partnership's recourse debt is shared among the partners.
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 19

The MOG Partnership reports ordinary income of $60,000, long-term capital gain of $12,000, and tax-exempt income of $12,000. The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income. Their allocation of ordinary income will be reduced accordingly, and Olivia will be allocated a proportionately greater share of ordinary income. In other words, each partner will receive allocations totaling one-third of the total $84,000 of partnership income.) This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.
a. Describe the elements that must be included in a partnership agreement in order for an allocation to have economic effect.
b. Discuss whether or not the MOG allocation would be permitted and provide your reasoning.

Accepted Answer

a. For partnership allocations to meet t

Question 20

The partner rather than the partnership) will make which of the following elections?

Accepted Answer

A)  To claim straight-line depreciation. 
B)  To claim a credit or deduction for foreign taxes paid. 
C)  To claim a low-income housing credit. 
D)  To claim a § 179 deduction for certain property placed in service during the year. 
E)  All of these elections. 
A)  To claim straight-line depreciation. 
B)  To claim a credit or deduction for foreign taxes paid. 
C)  To claim a low-income housing credit. 
D)  To claim a § 179 deduction for certain property placed in service during the year. 
E)  All of these elections.

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

A partnership is an association formed by two or more taxpayers which may be any type of entity) to carry on a trade or business.

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

Which of the following is not shown on the partnership's Schedule K of Form 1065?

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

The total tax burden on entity income is greater for a partner in a partnership up to 37% for an individual partner) than on a shareholder in a corporation 21% for an individual shareholder), so partnerships are used only in special situations.

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

The partner rather than the partnership) will make which of the following elections?

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and 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, Operations, and Basis

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

A partnership is an association formed by two or more taxpayers which may be any type of entity) to carry on a trade or business.

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

Which of the following is not shown on the partnership's Schedule K of Form 1065?

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

The total tax burden on entity income is greater for a partner in a partnership up to 37% for an individual partner) than on a shareholder in a corporation 21% for an individual shareholder), so partnerships are used only in special situations.

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

The partner rather than the partnership) will make which of the following elections?

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and 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