Question 1

Dori and Matt will be equal owners of a new business and will be making cash contributions to start up the business.They expect substantial losses in the early years so the business will take out a loan from the bank which Dori and Matt will have to guarantee.For tax purposes,the preferred business form for these early years will be
A)a C corporation.
B)an S corporation.
C)an LLC,taxed as a partnership.
D)either an S corporation or an LLC (partnership).The owners will be indifferent between these two forms.

Accepted Answer

An LLC taxed as a partnership allows Dori and Matt to pass through the substantial losses to their personal tax returns, potentially offsetting other income. This is beneficial in the early years when losses are expected.

Question 2

Assuming extensions are not filed,tax returns for calendar-year S corporations and partnerships are both due on April 15.

Accepted Answer

Tax returns for calendar-year S corporations are due on March 15, while tax returns for calendar-year partnerships are due on April 15.

Question 3

Realto LLC is a tax partnership which has four equal partners.The LLC holds highly appreciated real estate in midtown Manhattan.Trina is about to purchase a 20% ownership interest in the LLC.To minimize her future tax burden as a partner,she should negotiate a Sec.754 election with the current partners.

Accepted Answer

By negotiating a Sec. 754 election, Trina can receive a step-up in basis for her portion of the highly appreciated real estate. This can help reduce her future tax burden as a partner in the LLC.

Question 4

Which of the following statements is correct,assuming that an extension is not requested?
A)A partnership must file Form 1065 no later than the 15th day of the third month after the close of the partnership's tax year.
B)A partnership must file Form 1120 no later than the 15th day of the fourth month after the close of the partnership's tax year.
C)A partnership must file Form 1065 no later than the 15th day of the fourth month after the close of the partnership's tax year.
D)Partnerships must file Schedule K-1 to show how income is allocated to partners no later than the 15th day after the close of the partnership's tax year.

Accepted Answer

A partnership must file Form 1065 by the 15th day of the third month after the close of its tax year, which is typically March 15 for calendar-year partnerships.

Question 5

The partnership will make all of the elections affecting the computation of partnership income listed below except
A)the depreciation methods.
B)the optional basis adjustments under Sec.754.
C)the amortization method for organizational expenditures.
D)the election of deduction or credit for foreign income taxes.

Accepted Answer

The election of deduction or credit for foreign income taxes does not affect the computation of partnership income and therefore is not subject to partnership-level elections.

Quiz 33: Partnerships and S Corporations

Assuming extensions are not filed,tax returns for calendar-year S corporations and partnerships are both due on April 15.

Which of the following statements is correct,assuming that an extension is not requested?

The partnership will make all of the elections affecting the computation of partnership income listed below except