Question 1

Partnerships are not considered to be separate taxable entities and,consequently,are not taxed at the entity level.

Accepted Answer

Partnerships are pass-through entities, which means that the profits and losses are allocated to the individual partners who report them on their personal tax returns. The partnership itself does not pay taxes on its income.

Question 2

Which of the following,if any,correctly characterize the check-the-box Regulations?

Accepted Answer

The answer of Which of the following,if any,correctly characterize the...

Question 3

Guaranteed payments have no effect on the basis of a partner's interest in the partnership.

Accepted Answer

Guaranteed payments are payments to partners for services rendered or for use of capital, and they are treated as expenses of the partnership. They do not affect the partner's basis in the partnership.

Question 4

Changes in the liabilities (trade accounts payable,bank loans,etc.)of a partnership will affect the basis of a partnership interest.

Accepted Answer

Changes in liabilities will affect the overall value of the partnership and therefore impact the basis of each partner's interest.

Question 5

In return for a 10% interest in the Sapphire Partnership,Lily transfers cash of $50,000 and land (basis of $200,000; fair market value of $300,000).Lily's basis in her Sapphire Partnership interest is $250,000.

Accepted Answer

Lily's basis in her Sapphire Partnership interest is calculated by adding the value of the cash and property she contributed ($50,000 + $300,000 = $350,000) and subtracting the percentage of partnership interest she received as consideration (10% of the partnership is worth $35,000). Therefore, her basis in her partnership interest is $350,000 - $35,000 = $315,000. However, the question states that her basis in the partnership interest is $250,000, so there may be an error or discrepancy in the information provided.

Question 6

Guaranteed payments are deductible by the partnership and are taxable to the partner receiving the payments.

Accepted Answer

Guaranteed payments are considered a form of compensation for services rendered by a partner and are deductible by the partnership as an ordinary business expense. The partner receiving the payments must report them as ordinary income on their personal tax return.

Question 7

If a partnership interest is received in exchange for services rendered,ordinary income must be recognized by the recipient of the capital interest.

Accepted Answer

According to the tax code, if a partnership interest is received in exchange for services rendered, it is generally treated as ordinary income and must be recognized by the recipient of the capital interest.

Question 8

Jenny contributes land (adjusted basis of $300,000; fair market value of $280,000)and cash of $40,000 to the newly formed Green Partnership.Green will have a basis in the land of $280,000.

Accepted Answer

The fair market value of the land is lower than the adjusted basis, so the partnership will have a basis in the land of $300,000, not $280,000.

Question 9

Like S corporations,partnerships serve as conduits for their owners.

Accepted Answer

Partnerships, like S corporations, allow the profits and losses to pass through to their owners without being subject to corporate taxes.

Question 10

If a shareholder in an S corporation makes a loan to the corporation,this increases the basis in his stock investment.

Accepted Answer

The answer of If a shareholder in an S corporation...

Question 11

The holding period to the partnership of property contributed by a partner includes the period during which the property was held by the contributing partner.

Accepted Answer

This statement is true according to the IRS, as the holding period of property contributed to a partnership by a partner is considered to include the period during which the property was held by that partner. This can have tax implications for the partner if the property has appreciated in value since it was acquired.

Question 12

A partner's basis in the partnership interest is increased by his or her share of the tax-exempt income received by the partnership.

Accepted Answer

According to the tax code, a partner's basis in the partnership interest is increased by his or her share of the tax-exempt income received by the partnership. This is because tax-exempt income is not subject to taxation, so the partner is deemed to have received that income directly and therefore their basis is increased by that amount.

Question 13

If the basis of a partnership interest is exhausted,a partner cannot use loans made to the partnership to absorb excess losses.

Accepted Answer

This is true, if a partner's basis in their partnership interest is exhausted, they cannot use loans made to the partnership to absorb excess losses. They may only be able to deduct the losses on their personal tax return in future years, if they have sufficient basis restored.

Question 14

A partnership's ordinary income or loss is computed without considering any qualified dividend income.This item is separately stated and passes through to the individual partners.

Accepted Answer

Qualified dividend income is separately stated on a partnership's tax return and passes through to the individual partners as such. The partnership's ordinary income or loss is computed separately from this item.

Question 15

If property contributed to a partnership is subject to a liability (assumed by the partnership),gain is recognized to the contributing partner to the extent of the liability.

Accepted Answer

The answer of If property contributed to a partnership is...

Question 16

Partners cannot carry over partnership losses that exceed the basis in their partnership interests.

Accepted Answer

The answer of Partners cannot carry over partnership losses that...

Question 17

Even though partnerships are not subject to income tax,they are required to file income tax returns.

Accepted Answer

Partnerships are required to file income tax returns to report their income, deductions, credits, and other relevant information. Even though the partnership itself is not subject to income tax, its income is instead passed through to the partners who are then individually responsible for paying income tax on their share of the partnership's income.

Question 18

A partner's basis in the partnership interest is decreased by his or her share of the capital gains incurred by the partnership.

Accepted Answer

The answer of A partner's basis in the partnership interest...

Question 19

Jordan and his two brothers are equal owners in Taupe Partnership.If Jordan sells business property (basis of $230,000; fair market value of $180,000)to Taupe for $180,000,he can recognize the $50,000 realized loss.

Accepted Answer

According to the related party rules, when property is sold between related parties, the basis of the property is carried over to the buyer. Therefore, Jordan cannot recognize the $50,000 loss on the sale of the property to Taupe Partnership.

Question 20

The domestic production activities deduction (DPAD)is determined at the partnership level and then passed through to each individual partner based on his or her partnership interest.

Accepted Answer

The answer of The domestic production activities deduction (DPAD)is determined...

Quiz 20: Corporations and Partnerships