Question 1

Which of the following does not represent a tax election available to either partners or partnerships?

Accepted Answer

A)  Electing to change an accounting method 
B)  Electing to amortize organization costs 
C)  Electing to expense a portion of syndication costs 
D)  Electing to immediately expense depreciable property under Section 179 
A)  Electing to change an accounting method 
B)  Electing to amortize organization costs 
C)  Electing to expense a portion of syndication costs 
D)  Electing to immediately expense depreciable property under Section 179

Question 2

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 3

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) and are also treated as separately-stated items.

Accepted Answer

A) True 
 B)False

Question 4

What is the difference between the aggregate and entity theory of partnership taxation? Provide two examples of how partnership tax rules reflect the aggregate theory and two examples of how they reflect the entity theory.

Accepted Answer

The aggregate theory treats a partnershi

Question 5

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Accepted Answer

A) True 
 B)False

Question 6

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

Accepted Answer

A) True 
 B)False

Question 7

J&J, LLC was in its third year of operations when J&J decided to expand the number of members from two, A & B, with equal profits and capital interests to three members, A, B, and C. The third member, C, will contribute her financial expertise to the LLC in exchange for a 1/3 capital interest in J&J. Given the balance sheet below reflecting the financial position of J&J on the date member C is admitted, what are the tax consequences to members A, B, and C, and to J&J when C receives her capital interest? If, instead, member C receives a 1/3 profit interest, what would be the tax consequences to members A, B, and C, and to J&J?
 $$\begin{array}{l}
\text { Presidential Suites Partnership }\
\begin{array} { | l | c | c | c | } 
\hline & \text { Year-End } & \text { Profits } & \text { Capital } \
\hline \text { Lincoln, Inc. } & 3 / 31 & 35 \% & 30 \% \
\hline \text { Washington, Inc. } & 7 / 31 & 30 \% & 40 \% \
\hline \text { Blaster, Inc } & 11 / 30 & 35 \% & 30 \% \
\hline
\end{array}
\end{array}$$

Accepted Answer

If member C received a 1/3 capital inter

Question 8

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

Accepted Answer

A)  Only the partners' profits interests are relevant when determining if a partnership has a majority interest taxable year. 
B)  Under the principal partners test, a principal partner is defined as a partner having an interest of 3% or more in the profits or capital of the partnership. 
C)  The least aggregate deferral test utilizes the partners' capital interests to measure the amount of aggregate deferral. 
D)  A partnership is required to use a calendar year-end if it has a corporate partner. 
E)  None of these is true. 
A)  Only the partners' profits interests are relevant when determining if a partnership has a majority interest taxable year. 
B)  Under the principal partners test, a principal partner is defined as a partner having an interest of 3% or more in the profits or capital of the partnership. 
C)  The least aggregate deferral test utilizes the partners' capital interests to measure the amount of aggregate deferral. 
D)  A partnership is required to use a calendar year-end if it has a corporate partner. 
E)  None of these is true.

Question 9

Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob's outside basis in Freedom, LLC is $10,000. This includes his $2,500 one-fourth share of the LLC's debt. Bob's 704(b) capital account is $17,000. If Tom bought Bob's LLC interest for $17,000, what would Tom's outside basis be in Freedom, LLC?

Accepted Answer

A)  $10,000 
B)  $14,500 
C)  $17,000 
D)  $19,500 
A)  $10,000 
B)  $14,500 
C)  $17,000 
D)  $19,500

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 charitable contribution, $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

TQK, LLC provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc. each hold a 50% capital and profits interest in TQK. If TQK averaged $7,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

Accepted Answer

A)  Accrual method 
B)  Cash method 
C)  Hybrid method 
D)  Accrual method or Cash method 
A)  Accrual method 
B)  Cash method 
C)  Hybrid method 
D)  Accrual method or Cash method

Question 12

Which of the following entities is not considered a flow-through entity?

Accepted Answer

A)  C corporation 
B)  S corporation 
C)  Limited Liability Company (LL
C)  
D)  Partnership 
A)  C corporation 
B)  S corporation 
C)  Limited Liability Company (LL
C)  
D)  Partnership

Question 13

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 14

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 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

How does additional debt or relief of debt affect a partner's basis?

Accepted Answer

A)  Debt has no effect on a partner's basis 
B)  Relief of debt increases a partner's basis 
C)  Both additional debt and relief of debt increase a partner's basis 
D)  Additional debt increases a partner's basis 
A)  Debt has no effect on a partner's basis 
B)  Relief of debt increases a partner's basis 
C)  Both additional debt and relief of debt increase a partner's basis 
D)  Additional debt increases a partner's basis

Question 17

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?

Accepted Answer

A partner's tax basis must be adjusted t

Question 18

Fred has a 45% profits interest and 30% capital interest in the SAP Partnership and his tax basis before considering his share of SAP's current year loss is $11,000. Included in his tax basis is a $2,600 share of recourse debt and $5,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $15,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, the at-risk, and the passive activity loss limitations?

Accepted Answer

Fred is allocated 45 percent of the loss

Question 19

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

Accepted Answer

A) True 
 B)False

Question 20

What is the difference between a partner's tax basis and at-risk amount?

Accepted Answer

A partner's tax basis is adjusted to inc

Which of the following does not represent a tax election available to either partners or partnerships?

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) and are also treated as separately-stated items.

What is the difference between the aggregate and entity theory of partnership taxation? Provide two examples of how partnership tax rules reflect the aggregate theory and two examples of how they reflect the entity theory.

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

TQK, LLC provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc. each hold a 50% capital and profits interest in TQK. If TQK averaged $7,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

Which of the following entities is not considered a flow-through entity?

How does additional debt or relief of debt affect a partner's basis?

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

What is the difference between a partner's tax basis and at-risk amount?

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Exam 15: Forming and Operating Partnerships

Which of the following does not represent a tax election available to either partners or partnerships?

Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) and are also treated as separately-stated items.

What is the difference between the aggregate and entity theory of partnership taxation? Provide two examples of how partnership tax rules reflect the aggregate theory and two examples of how they reflect the entity theory.

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income.

Which of the following statements regarding the process for determining a partnership's tax year-end is true?

TQK, LLC provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc. each hold a 50% capital and profits interest in TQK. If TQK averaged $7,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

Which of the following entities is not considered a flow-through entity?

How does additional debt or relief of debt affect a partner's basis?

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?

Any losses that exceed the tax basis of a partner in their partnership interest are suspended and carried forward for 20 years.

What is the difference between a partner's tax basis and at-risk amount?

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters