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Exam 14: Forming and Operating Partnerships

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Question 51

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

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) All of the above
G) A) and D)

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Question 52

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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.

A) True
B) False

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Question 53

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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) ?

A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.

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

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?

The character of each separately stated item is determined at the partner level.

Actual or deemed cash distributions in excess of a partner's outside basis are generally taxable as capital gains.

Partnerships tax rules incorporate both the entity and aggregate approaches.

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

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 a FMV of $55,000.Her basis in the land is $20,000.Andrew contributes equipment with a FMV of $12,000 and a building with a 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?

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?

Which of the following statements is true when property is contributed in exchange for a partnership interest?

Jay has a tax basis of $14,000 in his partnership interest at the beginning of the partnership tax year.The following amounts of partnership debt were allocated to Jay and are included in his beginning of the year tax basis: (1) recourse debt - $3,000,(2) qualified nonrecourse debt - $1,000,and (3) nonrecourse debt - $500.There were no changes to the debt allocated to Jay during the tax year.  If Jay is allocated a $15,000 loss for the current year,how much of the loss will be suspended under the tax basis and at-risk limitations?

If partnership debt is reduced and a partner is deemed to receive a cash distribution,what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

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 interest 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?

For partnership tax years ending after December 31,2015,when must a partnership file its return?

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

Why are guaranteed payments deducted in calculating the ordinary business income (loss)of partnerships and treated as a separately-stated item for the partners that receive the payment?

Which of the following items are subject to the Net Investment Income tax when an individual partner is a material participant in the partnership?