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Exam 9: Forming and Operating Partnerships

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Question 21

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Which of the following items is subject to the net investment income tax when an individual partner is a material participant in the partnership?

A) Partner's distributive share of dividends.
B) Partner's distributive share of interest.
C) Partner's distributive share of ordinary business income.
D) Both partner's distributive share of dividends and partner's distributive share of interest.

E) B) and D)
F) C) and D)

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Question 22

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If a taxpayer sells a passive activity with suspended passive activity losses from prior years, what type of income can generally be offset by the suspended passive losses in the year of sale?

A) Passive activity income.
B) Portfolio income.
C) Active business income.
D) Any of these types of income can be offset.
E) None of the choices are correct. The suspended losses disappear when the passive activity is sold.

F) None of the above
G) A) and C)

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Question 23

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Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP) . In exchange for this interest, Gerald contributed a building with an 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?

Which of the following statements regarding partnership losses suspended by the tax basis limitation is true?

TQK, LLC, provides consulting services and was formed on 1/31/X5. Aaron and ABC, Inc., each hold a 50 percent capital and profits interest in TQK. If TQK averaged $27,000,000 in annual gross receipts over the last three years, what accounting method can TQK use for X9?

Partners adjust their outside basis by adding nondeductible expenses and subtracting any tax-exempt income to avoid being double taxed.

Under general circumstances, debt is allocated from the partnership to each partner in the following manner:

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

Tax elections are rarely made at the partnership level.

A partnership can elect to amortize organization and start-up costs; however, syndication costs are not deductible.

A purchased partnership interest has a holding period beginning on the date of purchase regardless of the type of property held by the partnership.

Which of the following items will affect a partner's tax basis?

Erica and Brett decide to form their new motorcycle business as an 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 an FMV of $45,000 and 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?

Jerry, a partner with 30 percent capital and profits interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry's tax basis in his partnership interest was $50,000. His current-year Schedule K-1 reported an ordinary loss of $15,000, long-term capital gain of $3,000, qualified dividends of $2,000, $500 of non-deductible expenses, a $10,000 cash contribution, and a reduction of $4,000 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?

What general accounting methods may be used by a partnership, and how and by whom are they selected?

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?

Partnerships may maintain their capital accounts according to which of the following rules?

John, a limited partner of Candy Apple, LP, is allocated $30,000 of ordinary business loss from the partnership. Before the loss allocation, his tax basis is $20,000 and his at-risk amount is $10,000. John also has ordinary business income of $20,000 from Sweet Pea, LP, as a general partner and ordinary business income of $5,000 from Red Tomato as a limited partner. How much of the $30,000 loss from Candy Apple can John deduct currently?

For partnership tax years ending after December 31, 2015, partnerships can request up to a six-month extension by filing IRS Form 7004 prior to the original due date of the partnership return.

Which of the following statements regarding the rationale for adjusting a partner's basis is false?