Question 1

Identify which of the following statements is true.

Accepted Answer

The statements provided are all false based on the U.S. Internal Revenue Code and regulations governing partnerships. A) The partnership tax year does not close simply because a partner transfers his interest by gift. B) The death of a partner does not automatically terminate a partnership, especially in a two-member partnership where the business can continue with the successor-in-interest. C) The complete liquidation of a partner's interest (even if it's 60%) does not terminate the partnership if other partners remain and continue the business.

Question 2

Sean,Penelope,and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000.In the following year,Penelope sold her one-third interest to Pedro for $225,000.At the time of the sale,the SPJ partnership had the following balance sheet:  
Shortly after Pedro became a partner,SPJ sold the land for $475,000.What are the tax consequences of the sale to Pedro and the partnership (1)assuming there is no Section 754 election in place,and (2)assuming the partnership has a valid Section 754 election?

Accepted Answer

The answer of Sean,Penelope,and Juan formed the SPJ partnership by...

Question 3

When must a partnership make mandatory basis adjustments?

Accepted Answer

Mandatory basis adjustments are required when there is a substantial built-in loss within the partnership, which is present when the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more. Therefore, choice D is the correct option. The other options - A, B, and C - do not trigger mandatory basis adjustments.

Question 4

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000.The partnership has assets with a basis of $1,600,000.What is the amount of the basis adjustment,if the partnership has a 754 election in place?

Accepted Answer

With a 754 election, the basis of partnership assets is adjusted to the fair market value of the assets. Since Han purchases a 25% interest in the partnership for $600,000, his share of the partnership's basis adjustment would be calculated as follows:
Fair market value of partnership assets = $1,600,000
25% share of partnership assets = $400,000
Purchase price of 25% interest = $600,000
Excess purchase price = $200,000 (the amount by which the purchase price exceeds Han's share of the fair market value of the assets)
Therefore, Han's share of the basis adjustment would be a $200,000 increase in his share of the partnership assets' basis.

Question 5

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

Accepted Answer

When a partner purchases an interest in a partnership, the basis of the partner's share of the partnership's assets is adjusted based on the purchase price. Since Patrick purchases a one-third interest in the partnership for $600,000, his share of the partnership assets is $1,800,000 ($600,000 / 0.33). However, the partnership's assets are only valued at $1,500,000, so there is a $300,000 built-in gain. Because the partnership has a 754 election in effect, Patrick's basis in his share of the partnership assets is increased by his share of the built-in gain, which is $100,000 (one-third of $300,000). Therefore, the correct answer is choice D - a $100,000 increase in Patrick's share of the basis in the partnership assets.

Question 6

A partnership terminates for federal income tax purposes if

Accepted Answer

According to the Internal Revenue Code, a partnership is terminated for federal income tax purposes if within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits. Other events such as the death of a general partner or state law terminating the partnership do not necessarily terminate the partnership for tax purposes.

Question 7

The STU Partnership,an electing Large Partnership,has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000,Sec.1231 gain $60,000,ordinary income $20,000,charitable contributions $15,000,and tax-exempt income $2,000.How much will be reported as ordinary income to its partners?

Accepted Answer

The answer of The STU Partnership,an electing Large Partnership,has no...

Question 8

Rod owns a 65% interest in the RRR Partnership,a general partnership,which he sells to the two remaining partners - Roger and Regis.The three partners have agreed that Rod will receive $160,000 in cash from the sale.Rod's basis in the partnership interest before the sale is $125,000,which includes his $35,000 share of partnership recourse liabilities.The partnership has assets with a $310,000 FMV and a $210,000 adjusted basis.What issues should Rod,Roger,and Regis consider before this sale takes place?

Accepted Answer

The answer of Rod owns a 65% interest in the...

Question 9

Marc is a calendar-year taxpayer who owns a 30% capital and profits interest in the MN Partnership.Nancy sells the remaining 70% capital and profits interest to Henry on October 31.The partnership year-end is March 31 as permitted by the IRS for business purpose reasons.The MN Partnership

Accepted Answer

The answer of Marc is a calendar-year taxpayer who owns...

Question 10

The AB,BC,and CD Partnerships merge into the ABCD Partnership.AB (owned by Austin and Ben)contributes assets worth $100,000.BC (owned by Ben and Charlie)contributes assets worth $200,000.CD (owned by Charlie and Dennis)contributes assets worth $300,000.The capital and profits interest in ABCD is owned by: Austin,10%;Ben,30%;Charlie,25%;and Dennis,35%.ABCD Partnership is a continuation of

Accepted Answer

The answer of The AB,BC,and CD Partnerships merge into the...

Question 11

Identify which of the following statements is true.

Accepted Answer

This statement is correct. Limited liability companies (LLCs) are a popular form of business entity because they offer the legal protection and limited liability of the corporate form, while also allowing for pass-through taxation like a partnership.

A is false because creating new partnerships out of an existing one doesn't necessarily mean that all resulting partnerships are considered new.

B is false because a partnership can be publicly traded without being listed on a securities exchange - for example, through the use of over-the-counter (OTC) markets.

Therefore, the only true statement is C.

Question 12

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

Accepted Answer

A limited liability company provides limited liability protection to its owners like a corporation, but allows for pass-through taxation like a partnership.

Question 13

Which of the following is valid reason for making a 754 election?

Accepted Answer

A 754 election allows a partnership to adjust the basis of its assets when there is a transfer of partnership interest or a distribution of property, which can be beneficial when an incoming partner pays more than their proportionate share of the partnership's assets.

Question 14

What are some advantages and disadvantages of making a Section 754 election?

Accepted Answer

The answer of What are some advantages and disadvantages of...

Question 15

Sally is a calendar-year taxpayer who owns a 30% capital and profits interest in the SEM
Partnership.Eric sells the remaining 70% capital and profits interest to Michelle on October 3.The partnership year-end is March 31 as permitted by the IRS for business purposes.Which of the following statements is correct?

Accepted Answer

Since the partnership year-end is March 31 and Eric sold his interest on October 3, Sally would have a distributive share for both periods. The new partnership is not a continuation of the old partnership because the ownership structure has changed with the addition of Michelle. Sally does not need to conform her tax year with the partnership tax year unless she owns a majority interest in the partnership.

Question 16

The LM Partnership terminates for tax purposes on July 15 when Latasha sells her 60% capital and profits interest to Zoe for $100,000.The partnership has no liabilities,and its assets at the time of termination are as follows:

Marika,a 40% partner in the LM Partnership,has a $64,800 basis in her partnership interest (outside basis)at the time of the termination.She has held her LM Partnership interest for three years at the time of the termination.The bases of Marika and Zoe in the new LM Partnership is:

Accepted Answer

The answer of The LM Partnership terminates for tax purposes...

Question 17

Patrick purchased a one-third interest in the PPP partnership for $600,000.At the time of the purchase,the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000.This year,PPP sells the land for $1,800,000.What is Patrick's recognized share of the gain on the sale of the land?

Accepted Answer

The answer of Patrick purchased a one-third interest in the...

Question 18

Identify which of the following statements is false.

Accepted Answer

The statement "When using the 50% rule to terminate a partnership, if an interest is sold more than once during the 12-month period, each sale is counted separately" is false. Each sale of the same interest during the 12-month period is treated as a single sale for purposes of the 50% rule.

Question 19

Which of the following statements is correct?

Accepted Answer

The Sec.754 election applies to both sales and distributions. It allows a partnership to adjust the basis of its assets when there is a transfer of partnership interest, either through sale or distribution. This ensures that the incoming partner's share of the assets has a proper tax basis.

Question 20

Quinn and Pamela are equal partners in the QP Partnership.On December 30 of the current year,the QP Partnership agrees to liquidate Quinn's partnership interest for a cash payment on December 30 of each of the next five years.What tax issues should Quinn and Pamela consider with respect to the liquidation of Quinn's partnership interest?

Accepted Answer

The answer of Quinn and Pamela are equal partners in...

Quiz 10: Special Partnership Issues

Identify which of the following statements is true.

When must a partnership make mandatory basis adjustments?

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000.The partnership has assets with a basis of $1,600,000.What is the amount of the basis adjustment,if the partnership has a 754 election in place?

Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?

A partnership terminates for federal income tax purposes if

Marc is a calendar-year taxpayer who owns a 30% capital and profits interest in the MN Partnership.Nancy sells the remaining 70% capital and profits interest to Henry on October 31.The partnership year-end is March 31 as permitted by the IRS for business purpose reasons.The MN Partnership

Identify which of the following statements is true.

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

Which of the following is valid reason for making a 754 election?

What are some advantages and disadvantages of making a Section 754 election?

Identify which of the following statements is false.

Which of the following statements is correct?