Question 1

Losses are disallowed on sales or exchanges between a partner and the partnership if the partner owns directly or indirectly more than a 50% interest in the capital or profits.

Accepted Answer

According to IRS rules, losses are disallowed on sales or exchanges between a partner and the partnership if the partner owns directly or indirectly more than a 50% interest in the capital or profits.

Question 2

All costs of organizing a partnership can be deducted in the year in which the partnership begins business.

Accepted Answer

Costs of organizing a partnership are considered start-up costs and are subject to capitalization and amortization rules. The partnership can elect to deduct up to $5,000 of these costs in the first year of business, with the remainder being amortized over a period of 180 months.

Question 3

The deduction limitation on net business interest expense is applied at the partner,not the partnership,level.

Accepted Answer

The deduction limitation on net business interest expense is applied at the partnership level, not the partner level, according to the Tax Cuts and Jobs Act.

Question 4

The basis of a partner's interest in a partnership is adjusted to reflect each partner's share of income and deduction items only if a distribution is made to the partners.

Accepted Answer

The basis of a partner's interest in a partnership is adjusted to reflect each partner's share of income and deduction items even if no distribution is made to the partners. This is known as the partner's "outside basis." However, the partner's "inside basis" (which reflects the partnership's basis in its assets) is only adjusted if a distribution is made to the partners.

Question 5

The expenses associated with promoting and marketing partnership interests can be currently deducted if $5,000 or less.Expenses in excess of $5,000 are amortized over 180 months.

Accepted Answer

The answer of The expenses associated with promoting and marketing...

Question 6

Although a partner's distributive share of income,deductions,losses,and credits is generally determined by partnership agreement,special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.

Accepted Answer

Although partners can agree to allocate income, deductions, losses, and credits among themselves in a way that differs from their ownership percentage, there are certain limitations on this ability. These limitations are referred to as special allocation provisions and aim to prevent partners from unfairly shifting tax benefits among themselves.

Question 7

A partnership sells equipment and recognizes depreciation recapture under Sec.1245.In reporting its results for the year,the partnership will separately state the Sec.1245 depreciation recapture.

Accepted Answer

The answer of A partnership sells equipment and recognizes depreciation...

Question 8

If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

Accepted Answer

When a partner contributes depreciable property to a partnership in exchange for a partnership interest, the depreciation recapture potential of the contributed assets does carry over to the partnership. This means that if the partnership later sells the assets and realizes a gain, some or all of the gain may be subject to depreciation recapture, which is taxed at a higher rate than other forms of gain.

Question 9

A partner in a partnership will deduct her qualified business income deduction as a deduction for AGI.

Accepted Answer

The qualified business income deduction is a deduction from AGI, not for AGI. It is taken after calculating AGI on the tax return.

Question 10

Gains on sales or exchanges between a partner and the partnership are treated as ordinary income if the partner owns more than a 50% interest in the capital or profits and the asset that is exchanged is not a capital asset in the transferee's hands.

Accepted Answer

Gains on sales or exchanges between a partner and the partnership are indeed treated as ordinary income if the partner owns more than a 50% interest in the capital or profits and the asset that is exchanged is not a capital asset in the transferee's hands.

Question 11

Ron,a single taxpayer,receives $750,000 of taxable income from the family trust fund.In addition,he has a 50% interest in a partnership in which he is a material participant.The partnership incurs a $600,000 loss,50% of which is allocated to Ron.Ron's basis in his partnership interest before adjustment for the loss is $800,000.Ron will be able to deduct his full $300,000 share of the partnership loss.

Accepted Answer

The answer of Ron,a single taxpayer,receives $750,000 of taxable income...

Question 12

The qualified business deduction is calculated and applied at the partner,not the partnership,level.

Accepted Answer

The qualified business deduction is a tax deduction that applies to certain business income earned by eligible taxpayers, including partners in a partnership. The deduction is calculated and applied at the partner level, not at the partnership level. Each partner is responsible for calculating their own deduction based on their share of qualified business income, W-2 wages paid by the partnership, and certain other factors. Therefore, the answer is true, the qualified business deduction is calculated and applied at the partner level, not the partnership level.

Question 13

Treasury Regulations require maintenance of partnership capital accounts under book accounting principles rather than tax accounting principles.The capital accounts will be maintained following GAAP accounting standards.

Accepted Answer

Treasury Regulations require partnership capital accounts to be maintained under tax accounting principles, not GAAP accounting standards.

Question 14

Ordinary losses and separately stated deduction and loss items that exceed a partner's basis carry over indefinitely until the partner has a positive partnership basis.

Accepted Answer

Ordinary losses and separately stated deduction and loss items that exceed a partner's basis carry over indefinitely until the partner has a positive partnership basis. This is true under the tax rules for partnerships.

Question 15

Guaranteed payments are not deductible by the partnership in arriving at partnership ordinary income but are included in the receiving partner's income.

Accepted Answer

The answer of Guaranteed payments are not deductible by the...

Question 16

A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.

Accepted Answer

When a partnership's liabilities increase, the partners' bases in their partnership interests will also increase because the increase in liabilities represents an increase in the partnership's debt, which is allocated to the partners based on their profit-sharing ratios.

Question 17

The excess business loss limitations apply at the partner,not partnership,level.

Accepted Answer

The excess business loss limitations apply at the partner level, as they are calculated and reported on the partner's individual tax return. The partnership as a separate entity is not subject to these limitations.

Question 18

The primary purpose of a partnership tax return is to determine the income,deduction,loss and credit items of the partnership and thus the amounts that should be reported by the individual partners.

Accepted Answer

The primary purpose of a partnership tax return is to determine the income, deduction, loss, and credit items of the partnership and allocate them to the individual partners. This allows the partners to report their share of the partnership's income or loss on their own tax returns.

Question 19

A partnership sells an asset for a gain.The asset had been transferred to the partnership two years ago by Partner J in exchange for a partnership interest.The asset was worth substantially more than its cost as of the transfer date.The partnership gain will be allocated to all of the partners in accordance with their profit and loss sharing ratios.

Accepted Answer

The gain from the sale of the asset will be allocated to Partner J to the extent of the built-in gain at the time of the transfer, due to the "built-in gain" rules, before being shared according to profit and loss ratios.

Question 20

The limitation on the deductibility of business interest expense does not apply to taxpayers whose average gross receipts for the three preceding years is less than $26 million in 2019.

Accepted Answer

This is stated in Section 163(j)(3)(A) of the Internal Revenue Code.

Quiz 33: Partnerships and S Corporations