Question 1

Match each of the following statements with the terms below that provide the best definition.
-Partner's capital account

Accepted Answer

A)  Adjusted basis of each partnership asset.
B)  Operating expenses incurred after entity is formed but before it begins doing business.
C)  Each partner's basis in the partnership.
D)  Reconciles book income to taxable income.
E)  Tax accounting election made by partnership.F) Tax accounting calculation made by partner.G) Tax accounting election made by partner.H) Does not include liabilities.I) Designed to prevent excessive deferral of taxation of partnership income.J) Amount that may be received by partner for performance of services for the partnership.K) Theory under which a partnership's recourse debt is shared among the partners.L) Will eventually be allocated to partner making tax-free property contribution to partnership.M) Partner's share of partnership items.N) Must generally be satisfied by any allocation to the partners.O) Justification for a tax year other than the required taxable year.P) No correct match is provided.Q) G) and N)
R) A) and B)

Question 2

Landis received $90,000 cash and a capital asset (basis of $50,000, fair market value of $60,000)  in a proportionate liquidating distribution. His basis in his partnership interest was $120,000 prior to the distribution. How much gain or loss does Landis recognize, and what is his basis in the asset received?

Accepted Answer

A)   $0 gain or loss; $30,000 basis.
B)   $0 gain or loss; $50,000 basis.
C)   $0 gain or loss; $60,000 basis.
D)   $20,000 gain; $50,000 basis.
E)   $30,000 gain; $60,000 basis.F) C) and D)
G) A) and E)

Question 3

Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership. The partnership reported
$200,000 of net income from operations, a $2,000 short-term capital loss, and a $10,000 charitable contribution. In addition, the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy. If the partnership has no beginning or ending liabilities, what is Katherine's basis in her partnership interest at the end of the year?

Accepted Answer

$116,400. Katherine's initial basis of $...

Question 4

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

Accepted Answer

A)  Adjusted basis of each partnership asset.
B)  Operating expenses incurred after entity is formed but before it begins doing business.
C)  Each partner's basis in the partnership.
D)  Reconciles book income to taxable income.
E)  Tax accounting election made by partnership.F) Tax accounting calculation made by partner.G) Tax accounting election made by partner.H) Does not include liabilities.I) Designed to prevent excessive deferral of taxation of partnership income.J) Amount that may be received by partner for performance of services for the partnership.K) Theory under which a partnership's recourse debt is shared among the partners.L) Will eventually be allocated to partner making tax-free property contribution to partnership.M) Partner's share of partnership items.N) Must generally be satisfied by any allocation to the partners.O) Justification for a tax year other than the required taxable year.P) No correct match is provided.Q) H) and M)
R) L) and P)

Question 5

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

Accepted Answer

A) True 
 B)False

Question 6

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume that the interest is not sold within two years after the time it is granted to the service partner.)

Accepted Answer

A)   A 10% interest in the capital of the partnership that will vest if the partner remains in the partnership for three years.
B)   A 20% interest in the future profits of the partnership received in exchange for future services to be performed for the partnership.
C)   A 25% interest in the capital of the partnership when there are no restrictions on transferability of the interest.
D)   A 30% interest in the capital of the partnership when the partner contributes intangible property with a $0 basis that the partner developed.
E)   All of these.F) B) and E)
G) A) and B)

Question 8

Your client, Greg, contributed precontribution gain property to BIG LLC on December 31, 2019, in exchange for a
30% interest.
a. Describe two types of distributions that might result in some or all of this precontribution gain being recognized by Greg.
b. In general terms, what is the purpose of these rules?

Accepted Answer

a. Distribution of the precontribution g...

Question 9

Brad is a 40% member in the BB LLC. At the beginning of the tax year, his capital account showed a balance of $120,000. In this case, his capital account equals his basis in the LLC interest excluding his share of the LLC's debts. His prior year-end Schedule K-1 showed recourse debt (guaranteed by Brad)  and nonrecourse debt of
$10,000 and $20,000, respectively. During the current year, BB reported net ordinary income of $200,000 and nondeductible expenses of $2,000. There were no distributions during the year. At the end of the year, Brad's current year Schedule K-1 showed recourse (guaranteed)  and nonrecourse debt of $20,000 and $30,000, respectively. How much is Brad's basis in the LLC interest at the end of the year?

Accepted Answer

A)   $199,200.
B)   $200,000.
C)   $220,000.
D)   $249,200.
E)   $250,000.F) A) and C)
G) A) and D)

Question 10

Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate current (nonliquidating)  distribution consisting of land held for investment (basis of $100,000, fair market value of $130,000)  and inventory (basis of $80,000, fair market value of $70,000) . After the distribution, Megan's bases in the received assets are, respectively:

Accepted Answer

A)   $100,000 (land)  and $20,000 (inventory) .
B)   $120,000 (land)  and $0 (inventory) .
C)   $50,000 (land)  and $70,000 (inventory) .
D)   $40,000 (land)  and $80,000 (inventory) .
E)   $130,000 (land)  and $70,000 (inventory) .F) None of the above
G) C) and D)

Question 11

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000. His basis in his partnership interest was $15,000 immediately before the distribution. Carlos assigns a basis of $7,000 to the inventory and recognizes no gain or loss.

Accepted Answer

A) True 
 B)False

Question 12

Scott owns a 30% interest in the capital and profits of the SOS Partnership. Immediately before he receives a proportionate current (nonliquidating) distribution from SOS, the basis of his partnership interest is $40,000. The distribution consists of $30,000 in cash and land with a fair market value of $80,000. SOS's adjusted basis in the land immediately before the distribution is $50,000. As a result of the distribution, Scott recognizes no gain or loss and his basis in the land is $10,000.

Accepted Answer

A) True 
 B)False

Question 13

Taylor's basis in his partnership interest is $140,000, including his $60,000 share of partnership debt. Sandy buys Taylor's partnership interest for $100,000 cash, and she assumes Taylor's $60,000 share of the partnership's debt. If the partnership owns no hot assets, Taylor will recognize a capital loss of $40,000.

Accepted Answer

A) True 
 B)False

Question 14

In a proportionate liquidating distribution, Sam receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $50,000) , and land (basis of $20,000, fair market value of $50,000) . In addition, the partnership repays all liabilities of which Sam's share was $40,000. Sam's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sam's basis in the accounts receivable and land, and how much gain or loss does he recognize?

Accepted Answer

A)   $0 basis in accounts receivable; $50,000 basis in land; $0 gain or loss.
B)   $0 basis in accounts receivable; $90,000 basis in land; $0 gain or loss.
C)   $50,000 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
D)   $50,000 basis in accounts receivable; $50,000 basis in land; $50,000 gain.
E)   $0 basis in accounts receivable; $70,000 basis in land; $30,000 loss.F) All of the above
G) A) and E)

Question 15

ACME Partnership has had the following gross receipts since its formation: $21.8 million in 2019, $24.6 million in 2020, $28.8 million in 2021, $23 million in 2022, and $32 million in 2023. ACME is not a tax shelter. Partner Meile, Inc. is a C corporation. In which tax years (2019 to 2023)  must ACME use the accrual method?

Accepted Answer

A)   2019 and all following years, because it has a partner that is a C corporation.
B)   2021 to 2023, because gross receipts are more than $25 million in 2021.
C)   2022 and 2023, because average annual gross receipts are more than $25 million in 2021.
D)   2021 and 2023 because those are the only years in which gross receipts exceeded $25 million.
E)   ACME can always use the cash method because it is not a tax shelter.F) A) and E)
G) A) and D)

Question 16

Which of the following is not shown on the partnership's Schedule K of Form 1065?

Accepted Answer

A)   The partnership's self-employment income.
B)   The partnership's separately stated income and deductions.
C)   The partnership's tax preference and adjustment items.
D)   The partnership's net operating loss carryforward.
E)   The partnership's investment (portfolio)  interest expense.F) All of the above
G) A) and D)

Question 17

Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership. If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

Accepted Answer

A) True 
 B)False

Question 18

Match each of the following statements with the numbered terms below that provide the best definition.
-Separately stated item

Accepted Answer

A)  Organizational choice of many large accounting firms.
B)  Partner's percentage allocation of current operating income.
C)  Might affect any two partners' tax liabilities in different ways.
D)  Partnership in which partners are liable only for any partner's malpractice.
E)  Amount that might be reported on either form 1065, page 1 or, on Schedule K.F) Transfer of asset to partnership followed by immediate distribution of cash to partner.G) Must have at least one general and one limited partner.H) Long-term capital gain might be recharacterized as ordinary income.I) All partners are jointly and severally liable for entity debts.J) Theory treating the partner and partnership as separate economic units.K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.L) Partnership's basis in asset after tax-free contribution of asset to partnership.M) One way to calculate a partner's economic interest in the partnership.N) Owners are members.O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.P) Participates in management.Q) Not liable for entity debts.R) No correct match provided.S) G) and M)
T) D) and O)

Question 19

Stephanie is a calendar year cash basis taxpayer. She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end. The partnership's operating income (after deducting guaranteed payments)  was $120,000 ($10,000 per month)  and $144,000 ($12,000 per month) , respectively, for the partnership tax years ended September 30, 2019 and 2020. The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30, 2019 and 2020. How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31, 2019?

Accepted Answer

A)   $60,000
B)   $72,000
C)   $84,000
D)   $90,000
E)   $108,000F) All of the above
G) B) and D)

Question 20

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Accepted Answer

A) True 
 B)False

Exam 21: Partnerships

Correct Answer
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Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership. If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

Correct Answer
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a. Distribution of the precontribution g...
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Which of the following is not shown on the partnership's Schedule K of Form 1065?

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

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Match each of the following statements with the numbered terms below that provide the best definition. -Separately stated item

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The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

Correct Answer
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For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

Correct Answer
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Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Partner's capital account

Correct Answer
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$116,400. Katherine's initial basis of $...
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Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume that the interest is not sold within two years after the time it is granted to the service partner.)

Correct Answer
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Exam 21: Partnerships

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Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership. If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

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Correct Answerverifieda. Distribution of the precontribution g...View AnswerShow Answer

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Which of the following is not shown on the partnership's Schedule K of Form 1065?

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

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Correct AnswerverifiedShow Answer

Match each of the following statements with the numbered terms below that provide the best definition. -Separately stated item

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The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

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Correct AnswerverifiedShow Answer

For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.

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Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

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Match each of the following statements with the terms below that provide the best definition. -Partner's capital account

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Correct AnswerverifiedShow Answer

Correct Answerverified$116,400. Katherine's initial basis of $...View AnswerShow Answer

Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume that the interest is not sold within two years after the time it is granted to the service partner.)

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a. Distribution of the precontribution g...
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$116,400. Katherine's initial basis of $...
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