Chapter 20 MC Flashcards
In determining his individual income tax, each partner reports his distributive share of the partnership income. Subject to certain restrictions, a partner’s distributive share is generally determined by
(B) the partnership agreement
(B). Salary, capital accounts, and basis are not necessarily related to the partner’s distributive share, which is determined under the partnership agreement.
Which of the following statements concerning the retirement of a general partner in a service partnership is (are) correct? I. Payments attributed to inventory and unrealized receivables will be treated as ordinary income to the retiring partner. II. Payment for goodwill will be treated as capital gain to the retiring partner if the partnership agreement provides for payments for goodwill.
(C) Both I and II
All the following statements concerning the tax consequences of forming a partnership are correct EXCEPT
(B) A partnership’s basis in contributed property is the property’s fair market value at the time of the transfer.
(B). A partnership generally retains the same basis in contributed property as the property had in the hands of the contributing partner.
All the following statements concerning the income tax status of a family partnership are correct EXCEPT
(D) Without contributing services to the partnership, a family member can be treated as a partner in a family partnership whose income consists primarily of fees or commissions.
(D). A family member in a partnership which is in the business of performing services must contribute services to the partnership to be treated as a partner for tax purposes.
An individual sold his interest in a partnership to another individual. All the following statements concerning the income taxation of the sale proceeds to the individual are correct EXCEPT
(C) That portion of the proceeds which represents his share of depreciable partnership property with a fair market value in excess of basis is received by him on a tax-free basis.
(C). Proceeds received for the fair market value of property in excess of its basis are taxable.
Julie is a partner in a partnership. All the following statements concerning adjustments to Julie’s interest in the partnership are correct EXCEPT
(A) Basis is decreased by Julie’s share of the partnership’s liability to her to the extent that she loaned money to the partnership as an outsider.
(A). Any liability to the partner by the partnership will increase, not decrease, basis
Smith and Jones formed a partnership. Smith contributed a building with an original cost of $80,000, a fair market value of $100,000, and an adjusted basis of $40,000. Jones contributed $100,000 cash. Each partner is a material participant in partnership business. How much can Smith currently deduct if his share of the partnership’s first-year operating loss is $45,000?
(C) $40,000
(C). The distributive share of a partnership’s operating loss that is deductible by an individual partner is limited to the adjusted basis of his or her partnership interest. Hence Smith’s adjusted basis in his partnership interest is $40,000, determined by his adjusted basis for the property he has contributed.
