Question 1

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions:
  Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

Accepted Answer

The answer of Illuminating Light Partnership had the following revenues,...

Question 2

A partnership with a C corporation partner must always use the accrual method as its accounting method.

Accepted Answer

A) True 
 B)False

Question 3

A partner's self-employment earnings (loss) may be affected by her share of ordinary business income (loss) and any guaranteed payments she receives. The impact of these amounts typically depends on the status of the partner. Which of the following statements correctly describes the effect these items have on the partner's self-employment earnings (loss)?

Accepted Answer

A)  General partner-only guaranteed payments affect self-employment earnings (loss). 
B)  General partner-ordinary business income (loss) and guaranteed payments affect self-employment earnings (loss). 
C)  Limited partner-only guaranteed payments affect self-employment earnings (loss). 
D)  Limited partner-only ordinary business income (loss) affects self-employment income (loss). 
E)  Both general partner-ordinary business income (loss) and guaranteed payments affect self-employment earnings (loss) and limited partner-only guaranteed payments affect self-employment earnings (loss).

Question 4

KBL, Inc., AGW, Inc., Blaster, Inc., Shiny Shoes, Inc., and a group of 24 individuals form Shoes Galore General Partnership on October 11, 20X9. Now, Shoes Galore 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 Shoes Galore use, and what rule requires this year-end?

Accepted Answer

The answer of KBL, Inc., AGW, Inc., Blaster, Inc., Shiny...

Question 5

Under proposed regulations issued by the Treasury Department, in which of the following situations should an LLC member be treated as a general partner for self-employment tax purposes?

Accepted Answer

A)  The member is not personally liable for any of the LLC debt. 
B)  The member has authority to contract on behalf of the LLC. 
C)  The member spends 450 hours participating in the management of the LLC's trade or business during the taxable year. 
D)  The member is listed on the LLC's letterhead.

Question 6

Sarah, Sue, and AS Inc. formed a partnership on May 1, 20X9, called SSAS, LP. Now that the partnership is formed, they must determine its appropriate year-end. Sarah has a 30 percent profits and capital interest while Sue has a 35 percent profits and capital interest. Both Sarah and Sue have calendar year-ends. AS Inc. holds the remaining profits and capital interest in the LP, and it has a September 30 year-end. What tax year-end must SSAS, LP, use for 20X9, and which test or rule requires this year-end?

Accepted Answer

A)  12/31, least aggregate deferral test. 
B)  9/30, majority interest taxable year. 
C)  12/31, majority interest taxable year. 
D)  12/31, principal partners test.

Question 7

Kim received a one-third profits and capital interest in Bright Line, LLC, in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $30,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: sales-$150,000, cost of goods sold-$90,000, depreciation expense-$45,000, long-term capital gains-$15,000, qualified dividends-$6,000, and municipal bond interest-$3,000. How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

Accepted Answer

A)  ($15,000). 
B)  $6,000. 
C)  $9,000. 
D)  $15,000. 
E)  None of the choices will be reported as ordinary business income (loss) on Schedule K-1.

Question 8

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.

Question 9

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 10

Lloyd and Harry, equal partners, form the Ant World Partnership. During the year, Ant World had the following revenue, expenses, gains, losses, and distributions:
  Given these items, what amount of ordinary business income (loss) and what separately stated items should be allocated to each partner for the year?

Accepted Answer

The answer of Lloyd and Harry, equal partners, form the...

Question 11

In what order should the tests to determine a partnership's year-end be applied?

Accepted Answer

A)  majority interest taxable year; least aggregate deferral; principal partners test. 
B)  principal partners test; majority interest taxable year; least aggregate deferral. 
C)  principal partners test; least aggregate deferral; majority interest taxable year. 
D)  majority interest taxable year; principal partners test; least aggregate deferral. 
E)  None of the choices are correct.

Question 12

Tim, a real estate investor, Ken, a dealer in securities, and Hardware, Inc., a retail lumber store, form a partnership called HKT, LP. HKT is in the home-building business. Tim recently purchased his interest in HKT, while the other partners purchased their interests several years ago. During X3, HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes. Which of the following statements best represents how their portion of the gain should be reported to the partner?

Accepted Answer

A)  Tim-Short-term capital gain. 
B)  Ken-Ordinary Income. 
C)  Hardware, Inc.-Long-term capital gain. 
D)  All of the choices accurately report the gain to the partner. 
E)  None of the choices accurately report the gain to the partner.

Question 13

A partner can generally apply passive activity losses against passive activity income for the year.

Accepted Answer

A) True 
 B)False

Question 14

Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution.

Accepted Answer

A) True 
 B)False

Question 15

Jordan, Inc., Bird, Inc., Ewing, Inc., and Barkley, Inc., formed Nothing-But-Net Partnership on June 1^st, 20X9. Now, Nothing-But-Net 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 Nothing-But-Net use, and what rule requires this year-end?

Accepted Answer

The answer of Jordan, Inc., Bird, Inc., Ewing, Inc., and...

Question 16

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

The answer of Lincoln, Inc., Washington, Inc., and Adams, Inc.,...

Question 17

Which of the following would not be classified as a separately stated item?

Accepted Answer

A)  Short-term capital gains. 
B)  Charitable contributions. 
C)  MACRS depreciation expense. 
D)  Guaranteed payments.

Question 18

The term "outside basis" refers to the partnership's basis in its assets, whereas the term "inside basis" refers to an individual partner's basis in her partnership interest.

Accepted Answer

A) True 
 B)False

Question 19

If a partner participates in partnership activities on a regular, continuous, and substantial basis, then the partnership's activities with respect to this individual partner are not considered passive.

Accepted Answer

A) True 
 B)False

Question 20

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 percent 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 the choices are true.

Exam 9: Forming and Operating Partnerships

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

A partnership with a C corporation partner must always use the accrual method as its accounting method.

Under proposed regulations issued by the Treasury Department, in which of the following situations should an LLC member be treated as a general partner for self-employment tax purposes?

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

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

In what order should the tests to determine a partnership's year-end be applied?

A partner can generally apply passive activity losses against passive activity income for the year.

Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution.

Which of the following would not be classified as a separately stated item?

The term "outside basis" refers to the partnership's basis in its assets, whereas the term "inside basis" refers to an individual partner's basis in her partnership interest.

If a partner participates in partnership activities on a regular, continuous, and substantial basis, then the partnership's activities with respect to this individual partner are not considered passive.

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