Question 1

Lexi and Allie formed a partnership. Lexi received a 30% interest in partnership capital and profits in exchange for land with a basis of $50,000 and a fair market value of $90,000. Allie received a 70% interest in partnership capital and profits in exchange for $210,000 of cash. Three years after the contribution date, the land contributed by Lexi is sold by the partnership to a third party for $120,000. How much taxable gain will Lexi recognize from the sale?

Accepted Answer

A)   $21,000.
B)   $40,000.
C)   $49,000.
D)   $70,000.
E)   None of the above.F) B) and E)
G) C) and D)

Question 2

Kevin, Cody, and Greg contributed assets to form the equal KCG Partnership. Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000) . Cody contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000) . Greg contributed cash of $60,000 and a fully depreciated property ($0 basis)  valued at $40,000. Which of the following tax treatments is not correct?

Accepted Answer

A)   Kevin's basis in his partnership interest is $130,000.
B)   Cody's basis in his partnership interest is $100,000.
C)   Greg's basis in his partnership interest is $60,000.
D)   KCG has a basis of $80,000, $40,000, and $0 in the land and property (excluding cash)  contributed by Kevin, Cody, and Greg, respectively.
E)   All of these statement are correct.F) A) and E)
G) None of the above

Question 3

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Accepted Answer

A)   A partnership typically has easier administrative and filing requirements than does a C corporation.
B)   Partnership income is subject to a single level of taxation; corporate income is double taxed.
C)   Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings.
D)   Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.
E)   All of the above are advantages of partnership taxation.F) B) and E)
G) A) and B)

Question 5

In a limited partnership, all partners are protected from debts of the partnership.

Accepted Answer

A) True 
 B)False

Question 6

Michelle and Jacob formed the MJ Partnership. Michelle contributed $20,000 of cash in exchange for her 50% interest in the partnership capital and profits. During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $10,000; Michelle received a distribution of $8,000 cash from the partnership; and Michelle had a 50% share in the partnership's $16,000 of recourse liabilities on the last day of the partnership year. Michelle's adjusted basis for her partnership interest at year end is:

Accepted Answer

A)   $17,000.
B)   $20,000.
C)   $25,000.
D)   $33,000.
E)   $38,000.F) A) and C)
G) None of the above

Question 7

Match each of the following statements with the terms below that provide the best definition.

Accepted Answer

The answer of Match each of the following statements with...

Question 8

If a partnership allocates losses to the partners, the partners must first apply the passive loss limitations, then the basis limitation, and finally the at-risk limitations. If all three hurdles are met, the partner may deduct the loss.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

Accepted Answer

A)   Depreciable property: the partnership treats the property as newly acquired depreciable property, and may claim a § 179 deduction.
B)   Unrealized (cash-basis)  receivables: the partnership will report a capital gain when the receivable is collected.
C)   Inventory (in the partner's hands) : the partnership reports ordinary income if the property is held as a capital asset and sold within five years of the contribution date.
D)   Land valued at less than its basis: the partnership reports a § 1231 loss if the property is sold at a loss.
E)   None of these statements is correct.F) B) and D)
G) A) and B)

Question 10

PaulCo, DavidCo, and Sean form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, while DavidCo and Sean use a November 30 and December 31 year-end, respectively. The partnership must use the least aggregate deferral method to determine its year end.

Accepted Answer

A) True 
 B)False

Question 11

Tyler and Travis formed the equal T&T Partnership during the current year, with Tyler contributing $300,000 in cash and Travis contributing land (basis of $120,000, fair market value of $160,000) and inventory (basis of $30,000, fair market value of $140,000). Travis recognizes no gain or loss on the contribution and his basis in his partnership interest is $150,000.

Accepted Answer

A) True 
 B)False

Question 12

Joseph is the managing general partner of JKL, in which he owns a 40% interest. For the year, JKL reported income of $300,000 (after deducting all guaranteed payments) . Joseph received a guaranteed payment of $20,000 for capital that he had loaned the partnership, and he received a guaranteed payment of $100,000 for services he performed for JKL. How much income from self-employment did Joseph earn from JKL?

Accepted Answer

A)   $20,000.
B)   $100,000.
C)   $120,000.
D)   $220,000.
E)   $240,000.F) None of the above
G) D) and E)

Question 13

Which of the following statements is not a requirement of the substantial economic effect test?

Accepted Answer

A)   Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions.
B)   An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the partner's capital account balance.
C)   A partner with a negative capital account balance must "restore" that capital account, generally by contributing cash to the partnership.
D)   On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive)  capital account balance.
E)   All of the above statements are requirements of the substantial economic effect test.F) C) and E)
G) A) and B)

Question 14

Paul sells one parcel of land (basis of $200,000)  for its fair market value of $250,000 to a partnership in which he owns a 75% capital interest. Paul held the land for investment purposes. The partnership is in the real estate development business, and will build residential housing (for sale to customers)  on the land. Paul will recognize:

Accepted Answer

A)   $0 gain or loss.
B)   $37,500 ordinary income.
C)   $37,500 capital gain.
D)   $50,000 ordinary income.
E)   $50,000 capital gain.F) C) and D)
G) A) and E)

Question 15

Jamie contributed fully depreciated ($0 basis) property valued at $30,000 to the JKLM Partnership in exchange for a 40% interest in partnership capital and profits. During the first year of partnership operations, JKLM had net taxable income of $80,000 and tax-exempt income of $10,000. The partnership distributed $20,000 cash to Jamie. Her share of partnership recourse liabilities on the last day of the partnership year was $13,000. What is Jamie's adjusted basis (outside basis) for her partnership interest at the end of the tax year?

Accepted Answer

$29,000. Jamie is a 40% partner and will...

Question 16

Which of the following is a correct definition of a concept related to partnership taxation?

Accepted Answer

A)   The entity concept treats partners and partnerships as separate units and gives the partnership its own tax "personality."
B)   A partner's capital sharing ratio is defined as the percent of partnership profits that will be allocated to the partner.
C)   The partnership's inside basis is defined as the sum of each partner's capital account balance.
D)   A special allocation is defined as an amount that could differently affect the tax liabilities of two or more partners.
E)   None of these statements is correct.F) B) and C)
G) C) and D)

Question 17

Which of the following is an election or calculation made by the partner rather than the partnership?

Accepted Answer

A)   Whether to claim a tax credit or deduction for foreign taxes.
B)   Whether to capitalize, amortize, or expense research and experimental costs.
C)   The taxable year of the partnership.
D)   The depreciation method used for partnership property.
E)   All of the above elections are made by the partnership.F) All of the above
G) A) and D)

Question 18

Henry contributes property valued at $60,000 (basis $50,000) in exchange for a 25% interest in the HIKE Partnership. If the property is later sold for $80,000, gain of $7,500 will be allocated to Henry.

Accepted Answer

A) True 
 B)False

Question 19

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Accepted Answer

A) True 
 B)False

Question 20

Erika contributed property with a basis of $30,000 and a value of $40,000 to the BE Partnership in exchange for a 40% interest in partnership capital and profits. During the first year of partnership operations, BE had net taxable income of $60,000. The partnership distributed $10,000 cash to Erika. Erika's adjusted basis (outside basis)  for her partnership interest at year-end is:

Accepted Answer

A)   $24,000.
B)   $30,000.
C)   $44,000.
D)   $54,000.
E)   None of the above.F) C) and E)
G) B) and D)

Exam 10: Partnerships: Formation, Operation, and Basis

Correct Answer
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$29,000. Jamie is a 40% partner and will...
View Answer

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Correct Answer
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Which of the following is a correct definition of a concept related to partnership taxation?

Correct Answer
verified

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

Correct Answer
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Which of the following statements is not a requirement of the substantial economic effect test?

Correct Answer
verified

In a limited partnership, all partners are protected from debts of the partnership.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If a partnership allocates losses to the partners, the partners must first apply the passive loss limitations, then the basis limitation, and finally the at-risk limitations. If all three hurdles are met, the partner may deduct the loss.

Correct Answer
verified

Henry contributes property valued at $60,000 (basis $50,000) in exchange for a 25% interest in the HIKE Partnership. If the property is later sold for $80,000, gain of $7,500 will be allocated to Henry.

Correct Answer
verified

Correct Answer
verified

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Correct Answer
verified

Match each of the following statements with the terms below that provide the best definition.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Which of the following is an election or calculation made by the partner rather than the partnership?

Correct Answer
verified

Exam 10: Partnerships: Formation, Operation, and Basis

Correct Answerverified$29,000. Jamie is a 40% partner and will...View AnswerShow Answer

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Correct AnswerverifiedShow Answer

Which of the following is a correct definition of a concept related to partnership taxation?

Correct AnswerverifiedShow Answer

The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes:

Correct AnswerverifiedShow Answer

Which of the following statements is not a requirement of the substantial economic effect test?

Correct AnswerverifiedShow Answer

In a limited partnership, all partners are protected from debts of the partnership.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a partnership allocates losses to the partners, the partners must first apply the passive loss limitations, then the basis limitation, and finally the at-risk limitations. If all three hurdles are met, the partner may deduct the loss.

Correct AnswerverifiedShow Answer

Henry contributes property valued at $60,000 (basis $50,000) in exchange for a 25% interest in the HIKE Partnership. If the property is later sold for $80,000, gain of $7,500 will be allocated to Henry.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A limited liability company offers all "members" protection from claims by the LLC's creditors.

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an election or calculation made by the partner rather than the partnership?

Correct AnswerverifiedShow Answer

Correct Answer
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$29,000. Jamie is a 40% partner and will...
View Answer

Correct Answer
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