Question 1

If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

Accepted Answer

A)   The partner will treat the distribution in excess of her basis as ordinary income
B)   The partner will treat the distribution in excess of her basis as capital gain
C)   The partner will not ever be taxed on the distribution in excess of her basis
D)   The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interestE) A) and B)
F) A) and C)

Question 2

Which of the following statements exemplifies the entity theory of partnership taxation?

Accepted Answer

A)   Partnerships are taxable entities.
B)   Partnerships determine the character of separately stated items at the partnership level.
C)   Partnerships make the majority of the tax elections.
D)   Both partnerships are taxable entities and partnerships make the majority of the tax elections are correct
E)   Both partnerships determine the character of separately stated items at the partnership level and partnerships make the majority of the tax elections are correctF) A) and E)
G) None of the above

Question 3

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Accepted Answer

A) True 
 B)False

Question 4

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1)  Increase for share of ordinary business income, (2)  Decrease for share of separately stated loss items, and (3)  Decrease for distributions?

Accepted Answer

A)   1, 3, 2
B)   1, 2, 3
C)   3, 1, 2
D)   2, 3, 1E) None of the above
F) A) and D)

Question 5

Hilary had an outside basis in LTL, General Partnership of $10,000 at the beginning of the year. LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000, a $10,000 reduction in Hilary's share of partnership debt, a cash distribution of $20,000, and tax-exempt income of $3,000. What is Hilary's adjusted basis at the end of the year?

Accepted Answer

A)   ($12,000) 
B)   ($9,000) 
C)   $0
D)   $15,000
E)   $18,000F) A) and D)
G) B) and D)

Exam 20: Forming and Operating Partnerships

Correct Answer
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Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Correct Answer
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Which of the following statements exemplifies the entity theory of partnership taxation?

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What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income, (2) Decrease for share of separately stated loss items, and (3) Decrease for distributions?

Correct Answer
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If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

Correct Answer
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Exam 20: Forming and Operating Partnerships

Correct AnswerverifiedShow Answer

Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.

Correct AnswerverifiedShow Answer

Which of the following statements exemplifies the entity theory of partnership taxation?

Correct AnswerverifiedShow Answer

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income, (2) Decrease for share of separately stated loss items, and (3) Decrease for distributions?

Correct AnswerverifiedShow Answer

If partnership debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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