Question 1

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 an 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

Question 2

Which of the following items is subject to the net investment income tax when an individual partner is 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)  Both partner's distributive share of dividends and partner's distributive share of interest

Question 3

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 an FMV of $45,000and 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

Question 4

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 5

The least aggregate deferral test uses the profit percentage of each partner to determine the minimum amount of tax deferral for the partner group as a whole in determining the permissible tax year-end of a partnership.

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

Sarah, Sue, and AS Incorporated 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 30percent profits and capital interest while Sue has a 35percent profits and capital interest. Both Sarah and Sue have calendar year-ends. AS Incorporated 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 8

Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with an FMV of $55,000. Her basis in the land is $20,000. Andrew contributes equipment with an FMV of $12,000 and a building with an FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

Accepted Answer

A)  $0 
B)  $4,000 
C)  $48,000 
D)  $52,000

Question 9

Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $28,000 of cash and land with an FMV of $73,000. Her basis in the land is $38,000. Andrew contributes equipment with an FMV of $30,000 and a building with an FMV of $51,000. His basis in the equipment is $26,000, and his basis in the building is $38,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

Accepted Answer

A)  $0 
B)  $4,000 
C)  $48,000 
D)  $52,000

Question 10

An additional allocation of partnership debt or relief of partnership debt is considered to be a deemed cash contribution or cash distribution, respectively.

Accepted Answer

A) True 
 B)False

Question 11

When must a partnership file its return?

Accepted Answer

A)  By the 15th day of the third month after the partnership's tax year-end. 
B)  By the seventh month after the original due date if an extension is filed. 
C)  By the 15th day of the fourth month after the partnership's tax year-end. 
D)  By the 15th day of the third month after the partnership's tax year-end and by the seventh month after the original due date if an extension is filed. 
E)  By the fifth month after the original due date if an extension is filed and by the 15th day of the fourth month after the partnership's tax year-end.

Question 12

Styling Shoes, LLC, filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax bases at the beginning of 20X8: (1) Jane, a member with a 25 percent profits and capital interest and a $8,500 outside basis, (2) Joe, a member with a 45 percent profits and capital interest and a $13,500 outside basis, and (3) Jack, a member with a 30 percent profits and capital interest and a $5,500 outside basis. The following items were reported on Styling's Schedule K for the year: ordinary income of $107,000, Section 1231 gain of $18,500, charitable contributions of $28,500, and tax-exempt income of $6,500. In addition, Styling received an additional bank loan of $15,500 during 20X8. What is Jane's tax basis after adjustment for her share of these items?

Accepted Answer

A)  $34,375 
B)  $38,250 
C)  $41,200 
D)  $67,050

Question 13

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 $45,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $4,000 and a building he bought as a storefront for the motorcycles. The building has an FMV of $40,000 and an adjusted basis of $25,000 and is secured by a $30,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

Accepted Answer

A)  $32,500 
B)  $34,000 
C)  $37,500 
D)  $39,000

Question 14

A partnership may use the cash method despite having a corporate partner when the partnership's average gross receipts for the prior three taxable years don't exceed _____.

Accepted Answer

A)  $5,000,000 
B)  $1,000,000 
C)  $26,000,000 
D)  Partnerships may never use the cash method if they have corporate partners

Question 15

Hilary had an outside basis in LTL General Partnership of $9,200 at the beginning of the year. LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $4,200, a $9,200 reduction in Hilary's share of partnership debt, a cash distribution of $19,200, and tax-exempt income of $2,200. What is Hilary's adjusted basis at the end of the year?

Accepted Answer

A)  ($12,800) 
B)  ($10,600) 
C)  $0 
D)  $13,400 
E)  $15,600

Question 16

On April 18, 20X8, Robert sold his 35 percent partnership interest in Fruit Wonder, LLC, to Richard for $120,000. Prior to selling his interest, Robert had a basis in Fruit Wonder of $80,000. Robert's basis included $5,000 of recourse debt and $15,000 of nonrecourse debt that had been allocated to him. Immediately after the purchase, what is Richard's tax basis in Fruit Wonder?

Accepted Answer

The answer of On April 18, 20X8, Robert sold his...

Question 17

Jordan, Incorporated, Bird, Incorporated, Ewing, Incorporated, and Barkley, Incorporated, 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, Incorporated, Bird, Incorporated, Ewing, Incorporated, and...

Question 18

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

Accepted Answer

The answer of What general accounting methods may be used...

Question 19

If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

Accepted Answer

A)  Passive activity income 
B)  Portfolio income 
C)  Active business income 
D)  Any of these types of income can be offset 
E)  None of the choices are correct. The suspended losses disappear when the passive activity is sold.

Question 20

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.

Exam 9: Forming and Operating Partnerships