Question 1

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Accepted Answer

False

Question 2

On the first day of the partnership's tax year,Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year.The partnership has $40,000 in recourse liabilities when Karen enters the partnership.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.There is no minimum gain related to the nonrecourse liability.During the year,the partnership incurs a $120,000 loss and a $20,000 increase in liabilities.How much of the loss can Karen report on her tax return for the current year?

Accepted Answer

Karen purchased a 50% interest in a general partnership. Therefore, she is entitled to report 50% of the partnership's losses on her tax return.

The partnership incurred a $120,000 loss during the year. Karen's share of the loss is 50% x $120,000 = $60,000.

Additionally, the partnership had a $20,000 increase in liabilities during the year. Since partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses, Karen's share of the liability increase is also 50%. Therefore, Karen's share of the liability increase is 50% x $20,000 = $10,000.

In total, Karen can report a loss of $60,000 - $10,000 = $50,000 on her tax return for the current year.

Question 3

Guaranteed payments are always ordinary income to the recipient.

Accepted Answer

Guaranteed payments are a type of payment made by a partnership to its partners for services rendered, and they are always treated as ordinary income to the recipient partner.

Question 4

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 5

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

Accepted Answer

According to the Internal Revenue Service (IRS), a partner's basis in a partnership interest is increased by his share of the partnership's tax-exempt income. This is because tax-exempt income is still considered when calculating a partner's basis, even though it is not subject to income tax. Therefore, the partner's basis is increased by his or her share of the tax-exempt income to reflect the additional value of the partnership interest.

Question 6

A partner's share of nonrecourse debt increases that partner's share of basis.

Accepted Answer

A partner's share of nonrecourse debt is included in their basis calculation, so an increase in nonrecourse debt would increase the partner's basis.

Question 7

Limited partners must consider the at-risk,basis,and passive loss limitations when determining the amount of their deductible loss.

Accepted Answer

This is because limited partners may not be able to deduct losses if they exceed their at-risk amount or if they exceed their basis in the partnership, and may also be subject to limitations on deducting passive losses.

Question 8

A partnership cannot make charitable contributions.

Accepted Answer

A partnership can make charitable contributions as long as they are made by the partnership and not by individual partners. The partnership can deduct the donations as a business expense on their tax return.

Question 9

A partner's "distributive share" is the partner's share of any assets distributed by the partnership.

Accepted Answer

A partner's "distributive share" refers to their share of the partnership's income, gain, loss, deduction, or credit, not the distribution of assets.

Question 10

Which of the following is false?

Accepted Answer

A large partnership is defined as having 100 or more partners. Therefore, choice B is false.

Question 11

The definition of a partnership does not include

Accepted Answer

A partnership can be defined in various ways, including as a syndicate, group, or pool, where two or more parties collaborate for a common purpose, often in a business context.

Question 12

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

Accepted Answer

George's basis in his partnership interest is equal to his initial investment plus his share of the partnership liabilities. Thus, his basis is $10,000 + (20% x $20,000) = $10,000 + $4,000 = $14,000. This is because the partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses, so each partner's share of the recourse liabilities is based on their percentage ownership in the partnership.

Question 13

Formation of a partnership requires legal documentation filed with the Secretary of State.

Accepted Answer

Formation of a partnership generally does not require filing legal documents with the Secretary of State. Partnerships are often formed through a partnership agreement between the parties involved, without the need for formal state registration, unlike corporations.

Question 14

A partner's basis for his partnership interest can be negative.

Accepted Answer

A partner's basis in a partnership cannot be negative; it can decrease to zero, but any losses or deductions beyond that point cannot further reduce the basis below zero.

Question 15

ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.

Accepted Answer

Al's distributive share of partnership income is used to calculate his taxable income, even if he received less in actual distributions from the partnership.

Question 16

A partnership must file Form 1065 only if its income exceeds $1,000.

Accepted Answer

A partnership must file Form 1065 regardless of its income or loss. The $1,000 threshold does not apply.

Question 17

Electing large partnership rules differ from other partnership rules in all of the following areas except

Accepted Answer

All of the above areas (partnership income reporting, partnership termination, and partnership audits) are affected by the rules for electing large partnerships. These rules apply to partnerships with 100 or more partners or with certain types of partners, and they require additional reporting requirements and other compliance measures.

Question 18

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

Accepted Answer

Gain can be recognized on the sale of property between a partnership and a partner who owns more than a 50% interest in the partnership. This is because transactions between a partnership and its partners are considered related party transactions, and special rules apply to prevent the abuse of tax laws, such as shifting taxable income or deductions between the entities.

Question 19

Identify which of the following statements is true.

Accepted Answer

A partnership can be formed without legal documentation as it primarily requires two or more parties to engage in business with the intent to share profits and losses. There's no requirement for an individual to elect not to be taxed as a partnership; rather, default tax classifications apply unless a specific election is made to change the classification. Thus, statement C is true as it correctly describes the basic criteria for a partnership's existence.

Question 20

Identify which of the following statements is true.

Accepted Answer

In a limited partnership, not all partners have limited liability; there must be at least one general partner with unlimited liability. A limited partnership can have only one general partner, and a corporate entity can serve as a general partner, making all the given statements false.

Quiz 17: Partnership Formation and Operation

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date the partner transfers the asset to the partnership.

Guaranteed payments are always ordinary income to the recipient.

Identify which of the following statements is true.

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

A partner's share of nonrecourse debt increases that partner's share of basis.

Limited partners must consider the at-risk,basis,and passive loss limitations when determining the amount of their deductible loss.

A partnership cannot make charitable contributions.

A partner's "distributive share" is the partner's share of any assets distributed by the partnership.

Which of the following is false?

The definition of a partnership does not include

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

Formation of a partnership requires legal documentation filed with the Secretary of State.

A partner's basis for his partnership interest can be negative.

ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.

A partnership must file Form 1065 only if its income exceeds $1,000.

Electing large partnership rules differ from other partnership rules in all of the following areas except

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

Identify which of the following statements is true.

Identify which of the following statements is true.