Chapter 14 Dash Taxation Of Partners & Partnerships

Question 1

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

Answer 1

partnership

Question 2

The actual partnership do not pay taxes because…

Answer 2

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

Question 3

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

Answer 3

written agreement

Question 4

Partnerships is a good way to avoid…

Answer 4

double taxation of dividends.

Question 5

The duty of the partners is to act with…

Answer 5

reasonable care.

Question 6

Partnerships have (limited or unlimited) liability.

Answer 6

unlimited liability

Question 7

Partnerships can easily be created with little…

Answer 7

cost.

Question 8

Partnerships can be dissolved upon the death of a…

Answer 8

partner.

Question 9

Partnerships lacks the ________________ of a corporation.

Answer 9

centralized management

Question 10

Partnerships are sometimes difficult when transferring…

Answer 10

partnership interest.

Question 11

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

Answer 11

general partner

limited partner

Question 12

“Limited partnership” are typically created to…

Answer 12

raise capital for a business venture.

Question 13

“Limited partnership” cannot manage the…

Answer 13

business.

Question 14

“Limited partnership” have limited…

Answer 14

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

Question 15

A “limited partnership” death ______ dissolve the partnership.

Answer 15

cannot

Question 16

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

Answer 16

entity theory

Question 17

A partnership must file a tax return for…

Answer 17

information purposes only.

Question 18

Partnerships can have their own ________________ and taxable year.

Answer 18

accounting method

Question 19

Partnerships can make various ___________ on their income taxes.

Answer 19

elections

Question 20

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

Answer 20

aggregate theory

Question 21

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

Answer 21

gains and losses.

Question 22

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

Answer 22

allocation percentage.

Question 23

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

Answer 23

guaranteed payments

Question 24

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

Answer 24

ordinary income.

Question 25

Do "guarantee payments" affect a partners basis?

Answer 25

No

Question 26

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

Answer 26

non-taxable

Question 27

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

Answer 27

earnings and losses.

Question 28

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

Answer 28

value of the cash.

Question 29

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

Answer 29

gain or loss.

Question 30

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

Answer 30

the value of the services.

Question 31

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

Answer 31

reduced.

Question 32

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

Answer 32

increase.

Question 33

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

Answer 33

1. When partners contribute capital 2. Other partner's partnership income 3. When other partners share the liabilities assumed

Question 34

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

Answer 34

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).

Question 35

A partnership where members are related through blood or marriage.

Answer 35

family partnership

Question 36

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

Answer 36

minimize taxes.

Question 37

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

Answer 37

abuse.

Question 38

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

Answer 38

properly reflect the entrance of the family partners.

Question 39

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

Answer 39

bona fide transfer. | gift or inheritance can be considered bona fide

Question 40

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

Answer 40

material income-producing

Question 41

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...

Answer 41

services to the partnership.

Question 42

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

Answer 42

liquidated.

Question 43

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

Answer 43

dissolve the partnership.

Question 44

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

Answer 44

service partnership

Question 45

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

Answer 45

inventory | ordinary income

Question 46

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

Answer 46

goodwill