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ch20

ch20

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Published by SK m Nirob (mithu)

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Published by: SK m Nirob (mithu) on Jan 30, 2014
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11/07/2014

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ch20
Student: ___________________________________________________________________________
1.Income earned by flow-through entities is usually taxed once at the entity level. True False
 
2.Partnerships tax rules incorporate both the entity and aggregate approaches. True False
 
3.The term "outside basis" refers to the partnership's basis in its assets; whereas, the term "inside basis" refers an individual partner's basis in her partnership interest. True False
 
4.A partnership can elect to amortize organization and startup costs; however, syndication costs are not deductible. True False
 
5.Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership. True False
 
6.Partners must generally treat the value of profits interests they receive in exchange for services as ordinary income. True False
 
7.A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership. True False
 
8.Tax elections are rarely made at the partnership level. True False
 
9.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. True False
 
10.A partnership with a C corporation partner must always use the accrual method as its accounting method. True False
 
11.The character of each separately-stated item is determined at the partner level. True False
 
12.Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) and are also treated as separately-stated items. True False
 
13.A general partner's share of ordinary business income is similar to investment income; thus, a general partner only includes their guaranteed payments as self-employment income. True False
 
14.Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners. True False
 
15.A partnership can request a five month extension by filing Form 7004 prior to the original due date of the partnership return. True False
 
 
16.A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments. True False
 
17.Actual or deemed cash distributions in excess of a partner's outside basis are generally taxable as capital gains. True False
 
18.Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution. True False
 
19.Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt income to avoid being double taxed. True False
 
20.An additional allocation of partnership debt or relief of partnership debt is considered to be a deemed cash contribution or cash distribution respectively. True False
 
21.Any losses that exceed the tax basis of a partner are suspended and carried forward for 20 years. True False
 
22.The main difference between a partner's tax basis and at risk amount is that qualified nonrecourse financing is not included in the at risk amount. True False
 
23.A partner can apply any passive activity losses against any passive activity income for the year. True False
 
24.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. True False
 
25.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. True False
 
26.Which of the following entities is not considered a flow-through entity? A. C corporationB. S corporationC. Limited Liability Company (LLC)D. Partnership
 
27.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 A and C are correctE. Both B and C are correct
 
28.Gerald received a 33% capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with a FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution? A. $6,000B. $9,000C. $21,000D. $24,000
 
 
29.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? A. $0B. $4,000C. $48,000D. $52,000
 
30.Erica and Brett decide to form their new motorcycle business as a LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $45,000, an adjusted basis of $30,000, and is secured by a $35,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest? A. $37,500B. $40,000C. $42,500D. $45,000
 
31.Under general circumstances, debt is allocated from the partnership to each partner in the following manner: A. Recourse - profit sharing ratios; nonrecourse - profit sharing ratiosB. Recourse - capital ratios; nonrecourse - capital ratiosC. Recourse - to partners with the ultimate responsibility for paying the debt; nonrecourse - profit sharing ratiosD. Recourse - profit sharing ratios; nonrecourse - to partners with the ultimate responsibility for paying the debt
 
32.Which of the following statements is true when property is contributed in exchange for a partnership interest? A. Any contributed property in a partnership has a carryover basis, and the character of the property is determined by the way the contributing partner used the property.B. The partnership's inside basis is typically increased by any gain the partner recognizes from the property contribution.C. The holding period for a partner's partnership interest depends upon the type of assets a partner contributes.D. Services are not allowed to be contributed to a partnership in return for a partnership interest.E. All of the above are true.
 
33.In X1, Adam and Jason formed ABC, LLC, a car dealership in Kansas City. In X2, Adam and Jason realized they needed an advertising expert to assist in their business. Thus, the two members offered Cory, a marketing expert, a 1/3 capital interest in their partnership for contributing his expert services. Cory agreed to this arrangement and received his capital interest in X2. If the value of the LLC's capital equals $180,000 when Cory receives his 1/3 capital interest, which of the following tax consequences does not occur in X2? A. Cory reports $60,000 of ordinary income in X2B. Adam, Jason and Cory receive an ordinary deduction of $20,000 in X2C. Adam and Jason receive an ordinary deduction of $30,000 in X2D. A and C
 

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