Question 1

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 2

Which of the following statements exemplifies the entity theory of partnership taxation?

Accepted Answer

A)  Partnerships are taxable entities. 
B)  Partnerships determine the character of separately stated items at the partnership level. 
C)  Partnerships make the majority of the tax elections. 
D)  Both Partnerships are taxable entities and Partnerships make the majority of the tax elections. 
E)  Both Partnerships determine the character of separately stated items at the partnership level and Partnerships make the majority of the tax elections. 
A)  Partnerships are taxable entities. 
B)  Partnerships determine the character of separately stated items at the partnership level. 
C)  Partnerships make the majority of the tax elections. 
D)  Both Partnerships are taxable entities and Partnerships make the majority of the tax elections. 
E)  Both Partnerships determine the character of separately stated items at the partnership level and Partnerships make the majority of the tax elections.

Question 3

Zinc, LP was formed on August 1, 20X9. When the partnership was formed, Al contributed $10,000 in cash and inventory with a FMV and tax basis of $40,000. In addition, Bill contributed equipment with a FMV of $30,000 and adjusted basis of $25,000 along with accounts receivable with a FMV and tax basis of $20,000. Also, Chad contributed land with a FMV of $50,000 and tax basis of $35,000. Finally, Dave contributed a machine, secured by $35,000 of debt, with a 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 4

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.

Accepted Answer

A) True 
 B)False

Question 5

Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $45,000, an adjusted basis of $30,000, and is secured by a $35,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

Accepted Answer

A)  $37,500. 
B)  $40,000. 
C)  $42,500. 
D)  $45,000. 
A)  $37,500. 
B)  $40,000. 
C)  $42,500. 
D)  $45,000.

Question 6

John, a limited partner of Candy Apple, LP, is allocated $30,000 of ordinary business loss from the partnership. Before the loss allocation, his tax basis is $20,000 and at-risk amount is $10,000. John also has ordinary business income of $20,000 from Sweet Pea, LP as a general partner and ordinary business income of $5,000 from Red Tomato, as a limited partner. How much of the $30,000 loss from Candy Apple can John deduct currently?

Accepted Answer

A)  $5,000. 
B)  $10,000. 
C)  $25,000. 
D)  $30,000. 
A)  $5,000. 
B)  $10,000. 
C)  $25,000. 
D)  $30,000.

Question 7

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 non-deductible 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 non-deductible expenses are never deductible. 
E)  None of these rationales are False.

Question 8

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% profits interest in the LLC with C Inc. having a 10% 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 9

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 10

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. When it was formed, the partners received equal profits and capital interests and the following items were contributed by each partner:
-Troy - cash of $3,000, inventory with a FMV and tax basis of $5,000, and a building with a FMV of $22,000 and adjusted basis of $10,000. Additionally, the building was secured by a $10,000 nonrecourse mortgage.
-Peter - cash of $5,000, accounts payable of $12,000 (recourse debt for which each partner becomes equally responsible), and land with a FMV of $27,000 and tax basis of $20,000.
-Sarah - cash of $2,000, accounts receivable with a FMV and tax basis of $1,000, and equipment with a FMV of $40,000 and adjusted basis of $3,500. Sarah also contributed a $23,000 nonrecourse note payable secured by the equipment.
What is each partner's outside basis and how much gain (loss) must the partners recognize in 20X9 when Picture Perfect was formed?

Accepted Answer

Troy would have an outside basis of $16,

Question 11

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

Accepted Answer

A)  Yes, if this basis adjustment is not made the partner will be taxed once when the income is allocated to him and a second time when he sells his partnership interest. 
B)  Yes, if this basis adjustment is not made the partner will be taxed on the tax-exempt income when he sells his partnership interest and again if the tax-exempt income exceeds $10,000. 
C)  No, making this adjustment to the partner's basis prevents the tax-exempt income from being converted to taxable income. 
D)  No, the partner should not adjust his tax basis by his share of tax-exempt income. 
A)  Yes, if this basis adjustment is not made the partner will be taxed once when the income is allocated to him and a second time when he sells his partnership interest. 
B)  Yes, if this basis adjustment is not made the partner will be taxed on the tax-exempt income when he sells his partnership interest and again if the tax-exempt income exceeds $10,000. 
C)  No, making this adjustment to the partner's basis prevents the tax-exempt income from being converted to taxable income. 
D)  No, the partner should not adjust his tax basis by his share of tax-exempt income.

Question 12

Which of the following items are 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 the 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 the choices are correct.

Question 13

Lincoln, Inc., Washington, Inc., and Adams, Inc. form Presidential Suites Partnership on February 15, 20X9. Now, Presidential Suites must adopt its required tax year-end. The partners' year-ends, profits interests, and capital interests are reflected in the table below. Given this information, what tax year-end must Presidential Suites use and what rule requires this year-end?

Accepted Answer

Because the partners all have different

Question 14

Which of the following items will affect a partner's tax basis?

Accepted Answer

A)  Share of ordinary business income (loss). 
B)  Share of nonrecourse debt. 
C)  Share of recourse debt. 
D)  Share of qualified nonrecourse debt. 
E)  All of the choices will affect a partner's tax basis. 
A)  Share of ordinary business income (loss). 
B)  Share of nonrecourse debt. 
C)  Share of recourse debt. 
D)  Share of qualified nonrecourse debt. 
E)  All of the choices will affect a partner's tax basis.

Question 15

Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with a FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

Accepted Answer

A)  $6,000. 
B)  $9,000. 
C)  $21,000. 
D)  $24,000. 
A)  $6,000. 
B)  $9,000. 
C)  $21,000. 
D)  $24,000.

Question 16

Income earned by flow-through entities is usually taxed only once at the entity level.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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% profits and capital interest. However, Candy Corp. has a September 30ᵗʰ year-end and holds the remaining 30% 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 y

Question 19

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 20

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

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

Which of the following statements exemplifies the entity theory of partnership taxation?

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.

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

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

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

Which of the following items are subject to the Net Investment Income tax when a partner is not a material participant in the partnership?

Which of the following items will affect a partner's tax basis?

Income earned by flow-through entities is usually taxed only once at the entity level.

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

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.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

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 U.S. Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 9: Forming and Operating Partnerships

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

Which of the following statements exemplifies the entity theory of partnership taxation?

Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed.

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

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

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

Which of the following items are subject to the Net Investment Income tax when a partner is not a material participant in the partnership?

Which of the following items will affect a partner's tax basis?

Income earned by flow-through entities is usually taxed only once at the entity level.

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

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.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

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 U.S. Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters