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Exam 21: Partnerships

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Question 81

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

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Question 82

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Partners' capital accounts should be determined using the same method on Form 1065 Schedule L,Form 1065 Schedule M-2,and the Schedules K-1 prepared for the partners.

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Question 83

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​Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

Match each of the following statements with the terms below that provide the best definition. 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. -Check the box regulations

​SQRLY LLC has about 25 LLC members.SwanCo (30% owner) and QuinnCo (16% owner) both have June 30 tax year ends.Royce,Inc.; Larry,Inc.; and Yolanda,Inc.each own 4% (12% total) and have September 31 taxable year ends.The other LLC members (42% total) each own interests of 4% or less and use the calendar year (December 31) .Which one of the following statements is true regarding the LLC's taxable year end?

A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.

Tim,Al,and Pat contributed assets to form the equal TAP Partnership.Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000) .Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000) .Pat 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?

Which one of the following statements regarding partnership taxation is incorrect?

Mark and Addison formed a partnership.Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000.Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash.Three years after the contribution date,the land contributed by Mark is sold by the partnership to a third party for $76,000.How much taxable gain will Mark recognize from the sale?

TEC Partners was formed during the current tax year.It incurred $10,000 of organizational expenses,$80,000 of startup expenses,and $5,000 of transfer taxes to retitle property contributed by a partner.The property had been held as MACRS property for ten years by the contributing partner,and had an adjusted basis to the partner of $300,000 and fair market value of $400,000.Which of the following statements is correct regarding these items?

Which of the following is not a specific adjustment to the partners' basis in the partnership interest?

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.

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. 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. -Economic effect test

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

​The partner (rather than the partnership) will make which one of the following elections?

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

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

Match each of the following statements with the terms below that provide the best definition. Match each of the following statements with the terms below that provide the best definition. 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. -Schedules M-1

The partnership agreement might provide,for example,that all interest income is allocated to Partner A. Allocating income in this manner is an example of a separately stated item. ​ ​

Before allocations for the current year,Marvin's basis in the MR LLC,in which Marvin is not an active member,is $50,000.His basis includes $10,000 of debt that he guaranteed,and $20,000 of nonrecourse debt that is not qualified nonrecourse financing.Marvin has passive income from other sources of $40,000.The LLC allocates a loss of $60,000 to Marvin.After application of the loss limitation rules,Marvin can deduct $40,000.