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| 1 | |
Partnership tax rules apply the aggregate approach and disregard the entity approach. |
| | A) | True |
| | B) | False |
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| 2 | |
A partnership can elect to amortize organization, startup costs and syndication costs. |
| | A) | True |
| | B) | False |
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| 3 | |
Nonrecourse debt is generally allocated according to the capital-sharing ratios of the partnership. |
| | A) | True |
| | B) | False |
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| 4 | |
Partners typically don't recognize any income for the value of profits interests they receive in exchange for services. |
| | A) | True |
| | B) | False |
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| 5 | |
Tax elections are usually made at the partnership level. |
| | A) | True |
| | B) | False |
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| 6 | |
A partnership without a C corporation partner may generally use the cash method of accounting. |
| | A) | True |
| | B) | False |
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| 7 | |
Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss) but not treated as separately stated items. |
| | A) | True |
| | B) | False |
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| 8 | |
A partner's outside basis must be increased by any positive basis adjustments and decreased by any distributions. |
| | A) | True |
| | B) | False |
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| 9 | |
Which of the following entities is not considered a flow-through entity? |
| | A) | Limited partnership |
| | B) | S corporation |
| | C) | Limited Liability Company (LLC) |
| | D) | General partnership |
| | E) | None of these. All are treated as flow-through entities. |
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| 10 | |
Dana and Mike decide to form their new motorcycle business as a LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $75,000 loan nonrecourse loan from First Bank at the time it is formed. Mike contributes cash of $10,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $65,000, an adjusted basis of $35,000, and is secured by a $40,000 nonrecourse mortgage that the business LLC will assume. What is Mike's outside tax basis in his LLC interest? |
| | A) | $47,500 |
| | B) | $60,000 |
| | C) | $65,000 |
| | D) | $105,000 |
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| 11 | |
Andy is talking to his friend Bruce, who has an interest in Arlington, LLC, about purchasing his LLC interest. Bruce's outside basis in Arlington, LLC is $21,000. This includes his $5,000 one-fourth share of the LLC's debt. Bruce's 704(b) capital account is $25,000. If Andy bought Bruce's LLC interest for $18,000, what would Andy's outside basis be in Arlington, LLC? |
| | A) | $5,000 |
| | B) | $21,000 |
| | C) | $23,000 |
| | D) | $25,000 |
| | E) | $30,000 |
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| 12 | |
Which of the following statements regarding capital and profit interests received for services contributed to a partnership is true? |
| | A) | The holding period of a capital or profits interest begins on the date the interest is received |
| | B) | Partners receiving capital interests must recognize the liquidation value of their capital interests as capital gain |
| | C) | Partners receiving only profits interests generally recognize capital gain when the profits interest is received |
| | D) | Partners receiving only profits interests generally recognize ordinary income when the profits interest is received |
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| 13 | |
Which of the following statements regarding the process for determining a partnership's tax year-end is false? |
| | A) | Only the partners' profits interests are relevant when determining if a partnership has a majority interest taxable year |
| | B) | Under the principal partners test, a principal partner is defined as a partner having an interest of 5% or more in the profits or capital of the partnership |
| | C) | The least aggregate deferral test utilizes the partners' profits interests to measure the amount of aggregate deferral |
| | D) | A partnership uses the tax year with the least aggregate deferral only if there is no majority interest tax year and the principal partners don't have the same year-end. |
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| 14 | |
Which of the following would be classified as a separately-stated item? |
| | A) | Employee salaries |
| | B) | Charitable contributions |
| | C) | Supplies expense |
| | D) | Rent expense |
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| 15 | |
Which of the following statements regarding a partner's basis adjustments is false? |
| | A) | A partner's basis may never be reduced below zero. |
| | B) | A partner must adjust his basis for ordinary income (loss) and for separately-stated items |
| | C) | Partnership fines and penalties do not affect a partner's basis |
| | D) | Relief of partnership debt decreases a partner's tax basis |
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