Chapter 19 Questions Flashcards
Partnerships must file their own tax returns.
True. Partnerships must file their own informational tax returns.
Each partner can decide whether to pass through partnership gains or leave them within the partnership.
False. Partnerships are pass-through entities.
No gain must be recognized at partnership formation for transfers of cash, property, or services.
True. Such transfers establish partners’ basis in the partnership.
Property transferred into a partnership retains its basis.
True. The property is, in a sense, still owned by the partner and therefore retains its basis.
A partner who transfers appreciated property to a partnership and then immediately sells their interest must recognize a gain.
True. Because transferred property retains its basis, such property would be sold at a gain.
A partner who assumes a liability from the partnership will increase their basis in the partnership.
True. Assuming liabilities is one way for partners to increase their basis in a partnership.
Partners may recognize losses from the partnership up to their basis.
True. Recognizing losses is a way for partners to reduce their basis. Once a partner’s basis is reduced to zero, no further losses may be recognized.
Upon the complete sale of a partnership interest, gains in goodwill are taxed as ordinary income.
False. Goodwill is taxed as a capital gain.
Sales of partnership interest within a family may be recognized as gifts if a lower-income partner does not perform sufficient services.
True. Sufficiently large partnership-interest sales may be subject to gift tax.
Family partnerships allow families to shift income across the family, reducing the total family tax burden.
True. Families must be careful to properly structure and transact family partnerships to avoid negative tax implications.
