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Match each of the following statements with the terms below that provide the best definition. -Limited liability company


A) Organizational choice of many large accounting firms.
B) Partner's percentage allocation of current operating income.
C) Might affect any two partners' tax liabilities in different ways.
D) Brokerage and registration fees incurred for promoting and marketing partnership interests.
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F) Must have at least one general and one limited partner.
G) All partners are jointly and severally liable for entity debts.
H) Theory treating the partner and partnership as separate economic units.
I) Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J) Partnership's basis in asset after tax-free contribution of asset to partnership.
K) Owners are "members."
L) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M) Allows many unincorporated entities to select their Federal tax status.
N) No correct match provided.

O) G) and M)
P) L) and M)

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Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

A) True
B) False

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Which one of the following statements regarding partnership taxation is incorrect?


A) A partnership is a taxable entity for Federal income tax purposes.
B) Partnership income is comprised of ordinary partnership income or loss and separately stated items.
C) A partnership is required to file a return with the IRS.
D) A partner's profit-sharing percent may differ from the partner's loss-sharing percent.
E) All of these statements are correct.

F) B) and E)
G) B) and D)

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Allison is a 40% partner in the BAM Partnership. At the beginning of the tax year, Allison's basis in the partnership interest was $100,000, including her share of partnership liabilities. During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners) . In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee. At the end of the year, Allison's share of partnership liabilities decreased by $10,000. Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:


A) $2,000.
B) $50,000.
C) $58,000.
D) $70,000.
E) None of the above.

F) A) and D)
G) A) and C)

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Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Also, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. ​ As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

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Because neither partner is a Subchapter ...

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Match each of the following statements with the terms below that provide the best definition. -Economic effect test


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Computation that determines the way recourse debt is shared.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) F) and J)
R) E) and P)

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During the current year, MAC Partnership reported the following items of receipts and expenditures: $600,000 sales, $80,000 utilities and rent, $200,000 salaries to employees, $20,000 guaranteed payment to partner Antonio, investment interest income of $4,000, a charitable contribution of $8,000, and a distribution of $30,000 to partner Carl. Antonio is a 25% general partner. Based on this information, what items will be reflected on Antonio's Schedule K-1?

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The partnership's ordinary taxable incom...

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TEC Partners was formed during the current tax year. It incurred $10,000 of organizational expenses, $80,000 of startup expenses, and $5,000 of transfer taxes to retitle property contributed by a partner. The property had been held as MACRS property for ten years by the contributing partner, and had an adjusted basis to the partner of $300,000 and fair market value of $400,000. Which of the following statements is correct regarding these items?


A) TEC treats the contributed property as a new MACRS asset placed in service on the date the property title is transferred.
B) TEC must amortize the $10,000 of organizational expenses over 180 months.
C) TEC's deducts the first $5,000 of startup expenses and amortizes the remainder over 180 months.
D) TEC must capitalize the transfer tax and treat it as a new asset placed in service on the date the property is contributed.
E) None of the above statements are true.

F) C) and E)
G) C) and D)

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A partnership will take a carryover basis in an asset it acquires when:


A) The partnership acquires the asset through a § 1031 like-kind exchange.
B) A partner owning 25% of partnership capital and profits sells the asset to the partnership.
C) The partnership leases the asset from a partner on a one-year lease.
D) The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a) .
E) None of the above.

F) C) and D)
G) D) and E)

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The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

A) True
B) False

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Tim, Al, and Pat contributed assets to form the equal TAP Partnership. Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000) . Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000) . Pat contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000. Which of the following tax treatments is not correct?


A) Tim's basis in his partnership interest is $120,000.
B) Al realizes and recognizes a loss of $10,000.
C) Pat realizes a gain of $40,000 but recognizes $0 gain.
D) TAP has a basis of $80,000, $50,000, and $0 in the land and property (excluding cash) contributed by Tim, Al, and Pat, respectively.
E) All of these statement are correct.

F) C) and E)
G) A) and B)

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A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

A) True
B) False

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A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -Schedules M-1 or M-3


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Computation that determines the way recourse debt is shared.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) F) and J)
R) F) and I)

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Which of the following is not a specific adjustment to the partners' basis in the partnership interest?


A) Increased by contributions the partner made to the partnership.
B) Decreased by the amount of guaranteed payments shown on the partner's Schedule K-1.
C) Increased by the partner's share of tax-exempt income.
D) Decreased by any decrease in the partner's share of partnership liabilities.
E) Increased by the partner's share of separately stated income items.

F) C) and E)
G) All of the above

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The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

A) True
B) False

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Which of the following statements is always true regarding accounting methods available to a partnership?


A) If a partnership is a tax shelter, it can use the cash method of accounting.
B) If a non-tax-shelter partnership had "average annual gross receipts" of less than $5 million in all prior years, it can use the cash method.
C) If a partnership has a partner that is a personal service corporation, it cannot use the cash method.
D) If a partnership has a partner that is a C corporation, it cannot use the cash method.
E) All of the above statements are false.

F) B) and C)
G) A) and E)

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Match each of the following statements with the terms below that provide the best definition. -Outside basis


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Computation that determines the way recourse debt is shared.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) G) and O)
R) A) and M)

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If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.

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Partnership income is intended to be sub...

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Match each of the following statements with the terms below that provide the best definition. -Schedule K-1


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Computation that determines the way recourse debt is shared.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) G) and H)
R) E) and I)

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