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HS321 > Chapter 14 Dash Taxation Of Partners & Partnerships > Flashcards

Chapter 14 Dash Taxation Of Partners & Partnerships Flashcards

1
Q

Two or more persons as co-owners of a business form profit.

A

partnership

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2
Q

The actual partnership do not pay taxes because…

A

it flows through to the partners, based on the partnership agreement

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3
Q

What is used to determine a partner’s distributive share of income from a partnership?

A

written agreement

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4
Q

Partnerships is a good way to avoid…

A

double taxation of dividends.

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5
Q

The duty of the partners is to act with…

A

reasonable care.

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6
Q

Partnerships have (limited or unlimited) liability.

A

unlimited liability

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7
Q

Partnerships can easily be created with little…

A

cost.

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8
Q

Partnerships can be dissolved upon the death of a…

A

partner.

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9
Q

Partnerships lacks the ________________ of a corporation.

A

centralized management

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10
Q

Partnerships are sometimes difficult when transferring…

A

partnership interest.

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11
Q

A “limited partnership” must have at least one ___________ and one _____________.

A

general partner

limited partner

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12
Q

“Limited partnership” are typically created to…

A

raise capital for a business venture.

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13
Q

“Limited partnership” cannot manage the…

A

business.

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14
Q

“Limited partnership” have limited…

A

liability. (You’re only losing the money you invest)

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15
Q

A “limited partnership” death ______ dissolve the partnership.

A

cannot

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16
Q

This theory is when the IRS recognizes a partnership as a separate entity.

A

entity theory

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17
Q

A partnership must file a tax return for…

A

information purposes only.

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18
Q

Partnerships can have their own ________________ and taxable year.

A

accounting method

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19
Q

Partnerships can make various ___________ on their income taxes.

A

elections

20
Q

Under this theory, the partnership is a conduit (flow through) and is not a separate entity.

A

aggregate theory

21
Q

Under the aggregate theory, partners are in business together to share…

A

gains and losses.

22
Q

The partner’s share of income must have substantial economic effect, otherwise the IRS may adjust the…

A

allocation percentage.

23
Q

Payment made to a partner regardless of whether the partnership has income (similar to a salary).

A

guaranteed payments

24
Q

“Guaranteed payments” are taxable to the individual partner as…

A

ordinary income.

25
Q

Do “guarantee payments” affect a partners basis?

A

No

26
Q

The contribution of money or property to a partnership, in exchange for partnership interest, is a ______________ transaction.

A

non-taxable

27
Q

A partners basis begins with contributions and is subsequently adjusted by…

A

earnings and losses.

28
Q

When cash is contributed to the partnership, each partner has a basis in the partnership interest equal to the…

A

value of the cash.

29
Q

When a partner transfers property to a partnership in exchange for an ownership interest, is there a gain or loss recognized?

A

gain or loss.

30
Q

If a partner contribute services to a partnership in exchange for a partnership interest, the partner must recognize compensation income equal to…

A

the value of the services.

31
Q

If a partnership assumes the liabilities of an individual partner (like a mortgage), the partner’s basis will be…

A

reduced.

32
Q

If I assume the partnership’s liabilities (like a mortgage), my basis will…

A

increase.

33
Q

Your basis as a partner will increase when these three things happen.

A
  1. When partners contribute capital
  2. Other partner’s partnership income
  3. When other partners share the liabilities assumed
34
Q

Your basis as a partner will decrease when these three things happen.

A
  1. Distributions made to me as a partner (return of basis)
  2. Partners distributive share of losses and nondeductible current expenditures.
  3. Partners share of liabilities relieved (paid or assumed by the partnership).
35
Q

A partnership where members are related through blood or marriage.

A

family partnership

36
Q

Family partnerships are sometimes form solely to shift income between a family unit in order to…

A

minimize taxes.

37
Q

The IRS pays close attention to family partnerships because there is a lot of room for…

A

abuse.

38
Q

If a family partnership lax economic reality (bullshiting), the IRS may ignore the partnership agreement and will reallocate income to…

A

properly reflect the entrance of the family partners.

39
Q

A family member will be recognized as a partner only if the partnership capital interest was acquired in a…

A

bona fide transfer.

gift or inheritance can be considered bona fide

40
Q

Capital must be a _________________ factor for the partnership in order for a family member to be recognized as a partner.

A

material income-producing

41
Q

If capital is not a material income-producing factor for a family partnership, then the interest will only be recognized if a family member contributed substantial…

A

services to the partnership.

42
Q

When a partner dies or retires, their partnership interest is…

A

liquidated.

43
Q

Without a written agreement, sometimes death of the general partner may…

A

dissolve the partnership.

44
Q

This type of partnership is where capital is not a material income-producing factor.

A

service partnership

45
Q

The portion of a “sale of partnership interest” proceeds which represent the partner’s share of the potential gain on ______________ items is taxable as __________.

A

inventory

ordinary income

46
Q

The portion of a “sale of a partnership interest” proceeds that represents ___________ maybe taxable to a partner as either capital gain or ordinary income.

A

goodwill

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