Identify which of the following statements is true.
A)Bob gives his 16-year-old daughter Michelle a 20% capital and profits interest in his accounting practice. She does no work for the partnership and is not involved at all with the operations of the partnership. In fact, she does not know that her dad transferred the interest in the partnership to her. If the partnership allocates an $8,000 distributive share of ordinary income to her, it is properly reported on Michelle's individual tax return.
B)Valid family partnership partners may be subject to the "kiddie tax."
C)Joan gives her daughter, Sarah, a 25% interest in a partnership that operates a steel mill. Sarah, age 19, was allocated $20,000 from the partnership as her share of the partnership ordinary income. The IRS will require the income to be included on Sarah's return.
D)All of the above are false.

Question

Quizplus · Accepted Answer

Valid family partnership partners may be subject to the "kiddie tax," which applies to children under age 19 or full-time students under age 24. The tax applies to unearned income over a certain threshold and is taxed at the parents' tax rate. Choices A and C are false as they incorrectly report the tax treatment of partnership income for minor partners. Choice D is false as at least one of the statements (choice B) is true.

Identify Which of the Following Statements Is True