Question 1

On January 1, X9, Gerald received his 50% profits and capital interest in High Air, LLC in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage. High Air reported a $15,000 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation?

Accepted Answer

A)   $0, $4,000.
B)   $0, $7,500.
C)   $0, $15,000.
D)   $4,000, $0.
E)   None of the choices are correct.F) A) and D)
G) All of the above

Question 2

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

Accepted Answer

A)   Partnership losses must be used only in the year the losses are created.
B)   Partnership losses may be carried back 2 years and carried forward 5 years.
C)   Partnership losses may be carried forward indefinitely.
D)   Partnership losses may be carried back 2 years and carried forward 20 years.E) B) and C)
F) All of the above

Question 3

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

Shoes Galore must adopt a 1/31 year end ...

Question 4

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.E) A) and D)
F) A) and C)

Question 5

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.F) A) and B)
G) A) and C)

Question 6

A partnership can elect to amortize organization and startup costs; however, syndication costs are not deductible.

Accepted Answer

A) True 
 B)False

Question 7

ER General Partnership, a medical supplies business, states in its partnership agreement that Erin and Ryan agree to split profits and losses according to a 40/60 ratio. Additionally, the partnership will provide Erin with a $15,000 guaranteed payment for services she provides to the partnership. ER Partnership reports the following revenues, expenses, gains, losses, and distributions for its current taxable year:
  *The Land is a Section 1231 asset
Given these items, answer the following questions:
A. Compute Erin's share of ordinary income (loss) and separately-stated items. Include her self-employment income as a separately-stated item.
B. Compute Erin's self-employment income, except assume ER Partnership is a limited partnership and Erin is a limited partner.
C. Compute Erin's self-employment income, except assume ER Partnership is an LLC and Erin is personally liable for half of the debt of the LLC. Apply the IRS's proposed regulations in formulating your answer.

Accepted Answer

A. Erin's share of ordinary income (loss...

Question 8

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% profits and capital interest while Sue has a 35% 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)   9/30, majority interest taxable year.
B)   12/31, majority interest taxable year.
C)   12/31, principal partners test.
D)   12/31, least aggregate deferral test.E) None of the above
F) A) and D)

Question 9

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.E) A) and B)
F) A) and C)

Question 10

Which person would generally be treated as a material participant in an activity?

Accepted Answer

A)   A participant in a rental activity.
B)   A limited partner.
C)   A LLC member not involved with management of the LLC.
D)   A general partner.E) B) and D)
F) None of the above

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.E) All of the above
F) A) and C)

Question 12

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.F) C) and D)
G) None of the above

Question 13

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

($28,000),...

Question 14

A partner's tax basis or at-risk amount can be increased by making capital contributions, by paying off partnership debt, or by increasing the profitability of the partnership.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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) .F) A) and D)
G) D) and E)

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

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.F) A) and B)
G) A) and C)

Question 20

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.E) None of the above
F) A) and C)

Exam 20: Forming and Operating Partnerships

Correct Answer
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A. Erin's share of ordinary income (loss...
View Answer

Correct Answer
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Shoes Galore must adopt a 1/31 year end ...
View Answer

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

Correct Answer
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Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

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

Correct Answer
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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.

Correct Answer
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A partnership can elect to amortize organization and startup costs; however, syndication costs are not deductible.

Correct Answer
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Which person would generally be treated as a material participant in an activity?

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

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

Correct Answer
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A partner's tax basis or at-risk amount can be increased by making capital contributions, by paying off partnership debt, or by increasing the profitability of the partnership.

Correct Answer
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Correct Answer
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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?

Correct Answer
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($28,000),...
View Answer

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

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

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

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

Correct Answer
verified

Exam 20: Forming and Operating Partnerships

Correct AnswerverifiedA. Erin's share of ordinary income (loss...View AnswerShow Answer

Correct AnswerverifiedShoes Galore must adopt a 1/31 year end ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A partnership can elect to amortize organization and startup costs; however, syndication costs are not deductible.

Correct AnswerverifiedShow Answer

Which person would generally be treated as a material participant in an activity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A partner's tax basis or at-risk amount can be increased by making capital contributions, by paying off partnership debt, or by increasing the profitability of the partnership.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct Answerverified($28,000),...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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A. Erin's share of ordinary income (loss...
View Answer

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Shoes Galore must adopt a 1/31 year end ...
View Answer

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($28,000),...
View Answer

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Correct Answer
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