Question 1

The MOP Partnership is involved in construction activities. Patricia has an adjusted basis for her partnership interest on January 1 of the current year of $600,000, consisting of the following: $\begin{array}{lr}
\text { Capital account } & \$ 350,000 \
\text { Share of partnership recourse debt } & 50,000 \
\text { Share of partnership nonrecourse debt } & 200,000 \
&\$600,000
\end{array}$ ​
During the year, the partnership has an operating loss of $1.2 million and distributes $60,000 of cash to Patricia. Partnership liabilities were the same at the end of the tax year, and the nonrecourse debt is not "qualified nonrecourse debt." If she owns a 60% share of partnership profits, capital, and losses, and is an active ("material") participant in the partnership, how much of her share of the operating loss can Patricia deduct? What Code provisions could cause a suspension of the loss? How would your answer change if MOP were an LLC and Patricia had not personally guaranteed any of the debt?

Accepted Answer

Patricia can only deduct $340,000 of her...

Question 2

What are "syndication costs" and how are they treated for tax purposes?

Accepted Answer

Syndication costs are costs incurred in ...

Question 3

Tara and Robert formed the TR Partnership four years ago. Because they decided the company needed some expertise in multimedia presentations, they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership. On July 1 of the current year, the unrestricted partnership interest (fair market value of $25,000)  was transferred to Katie. How should Katie treat the receipt of the partnership interest in the current year?

Accepted Answer

A)  Nontaxable.
B)  $25,000 ordinary income.
C)  $25,000 short-term capital gain.
D)  $25,000 long-term capital gain.
E)  None of the above.

Question 4

Match each of the following statements with the terms below that provide the best definition.
-Constructive liquidation scenario

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) Computation that determines the way recourse debt is shared.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.

Question 5

William is a general partner in the WST partnership. During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000. William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.

Accepted Answer

A) True 
 B)False

Question 6

In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities, and $20,000 as a distribution to partner Olivia. In addition, the partnership earned $6,000 of long-term capital gains during the year. Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year?

Accepted Answer

A)  $68,000 ordinary income.
B)  $78,000 ordinary income.
C)  $65,000 ordinary income; $3,000 of long-term capital gains.
D)  $75,000 ordinary income; $3,000 of long-term capital gains.
E)  None of the above.

Question 7

The LN partnership reported the following items of income and deduction during the current tax year: revenues, $300,000; cost of goods sold, $180,000; tax-exempt interest income, $2,000; salaries to employees, $80,000; and long-term capital gain, $10,000. In addition, the partnership distributed $20,000 of cash to 50% partner Nina and $10,000 of cash to 50% partner Len. What is Nina's share of ordinary partnership income and separately stated items?

Accepted Answer

The partnership's ordinary tax...

Question 8

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2016. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Accepted Answer

A) True 
 B)False

Question 9

Which one of the following is not shown on the partnership's Schedule K on Page 4 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)  All of the above.

Question 10

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 11

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Accepted Answer

A) True 
 B)False

Question 12

Fern, Inc., Ivy, Inc., and Jeremy formed a general partnership. Fern owns a 50% interest and Ivy and Jeremy each own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc., files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose?

Accepted Answer

A)  The partnership must choose the calendar year because it has no principal partners.
B)  The partnership must choose an October year-end because Fern, Inc., is a principal partner.
C)  The partnership can request permission from the IRS to use a January 31 fiscal year under § 444.
D)  The partnership must use the "least aggregate deferral" method to determine its "required" taxable year.
E)  None of the above.

Question 13

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

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)  Brokerage and registration fees incurred for promoting and marketing partnership interests.
E)  Transfer of asset to partnership followed by immediate distribution of cash to partner.F) Must have at least one general and one limited partner.G) All partners are jointly and severally liable for entity debts.H) Theory treating the partner and partnership as separate economic units.I) Partner's basis in partnership interest after tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free contribution of asset to partnership.K) Owners are "members."L) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.M) Allows many unincorporated entities to select their Federal tax status.N) No correct match provided.

Question 14

Match each of the following statements with the terms below that provide the best definition.
-Domestic production activities deduction

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) Computation that determines the way recourse debt is shared.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.

Question 15

Which of the following entity owners cannot participate in management of the entity?

Accepted Answer

A)  A general partner in a general partnership.
B)  A member of a limited liability company.
C)  A partner in a limited liability partnership.
D)  A limited partner in a limited liability limited partnership.
E)  None of the above.

Question 16

Tom and William are equal partners in the TW Partnership. Just before TW liquidated, Tom's capital account balance was $50,000 and William's capital account balance was $30,000. To meet the substantial economic effect requirements, any liquidating cash distribution must be allocated in proportion to those ending capital account balances.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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

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)  Brokerage and registration fees incurred for promoting and marketing partnership interests.
E)  Transfer of asset to partnership followed by immediate distribution of cash to partner.F) Must have at least one general and one limited partner.G) All partners are jointly and severally liable for entity debts.H) Theory treating the partner and partnership as separate economic units.I) Partner's basis in partnership interest after tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free contribution of asset to partnership.K) Owners are "members."L) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.M) Allows many unincorporated entities to select their Federal tax status.N) No correct match provided.

Question 19

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 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 in 3 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 where there are no restrictions on transferability of the interest.
D)  A 30% interest in ongoing profits of the partnership where the partnership is not a publicly-traded partnership and the income stream is not assured.
E)  All of the above.

Question 20

What is the difference between a partner's basis in the partnership interest and a partner's § 704(b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

Accepted Answer

The partner's capital account balance is...

Exam 10: Partnerships Formation Operation and Basis

What are "syndication costs" and how are they treated for tax purposes?

Correct Answer
verified
Syndication costs are costs incurred in ...
View Answer

What is the difference between a partner's basis in the partnership interest and a partner's § 704(b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

Correct Answer
verified
The partner's capital account balance is...
View 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 the interest is not sold within two years after the time it is granted to the service partner.)

Correct Answer
verified

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

Correct Answer
verified

Which of the following entity owners cannot participate in management of the entity?

Correct Answer
verified

Correct Answer
verified
The partnership's ordinary tax...
View Answer

Correct Answer
verified

Match each of the following statements with the terms below that provide the best definition. -Constructive liquidation scenario

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
verified

Correct Answer
verified

Correct Answer
verified
Patricia can only deduct $340,000 of her...
View Answer

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2016. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Correct Answer
verified

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Correct Answer
verified

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
verified

Match each of the following statements with the terms below that provide the best definition. -Domestic production activities deduction

Correct Answer
verified

Exam 10: Partnerships Formation Operation and Basis

What are "syndication costs" and how are they treated for tax purposes?

Correct AnswerverifiedSyndication costs are costs incurred in ...View AnswerShow Answer

What is the difference between a partner's basis in the partnership interest and a partner's § 704(b) book capital account? What are the purposes of these two amounts? Why are these amounts typically different?

Correct AnswerverifiedThe partner's capital account balance is...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 the interest is not sold within two years after the time it is granted to the service partner.)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following entity owners cannot participate in management of the entity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe partnership's ordinary tax...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Constructive liquidation scenario

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

Correct AnswerverifiedPatricia can only deduct $340,000 of her...View AnswerShow Answer

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2016. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Correct AnswerverifiedShow Answer

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Correct AnswerverifiedShow Answer

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 AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Domestic production activities deduction

Correct AnswerverifiedShow Answer

Correct Answer
verified
Syndication costs are costs incurred in ...
View Answer

Correct Answer
verified
The partner's capital account balance is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The partnership's ordinary tax...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Patricia can only deduct $340,000 of her...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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