Chapter 20 T/F Flashcards
Business organizations that are unincorporated under state law may generally choose whether to be taxed as partnerships or corporations.
True
A limited liability company has the corporate characteristic of limited liability but may be taxed as a partnership.
True
Profits earned by a partnership are taxed twice: once to the partnership itself and also to its owners.
False. The partnership itself is not a taxpayer. Therefore profits are taxed only once to each partner.
Partners in a partnership may deduct their shares of the partnership’s net loss on their individual tax returns.
True
he aggregate theory and the entity theory are two theories of partnership taxation used in tax law relating to partnerships and their partners.
True
When a partner contributes appreciated assets to a partnership, he or she recognizes gain on the transfer.
False. No gain is recognized on the transfer of appreciated assets to a partnership. The contributor-partner will generally take as his or her original basis for his or her partnership interest the basis he or she had in the property contributed at the time of contribution.
A partnership files its own partnership return and pays partnership income taxes
False. A partnership does file a partnership return, but only for informational purposes. A partnership does not pay income taxes.
A partner’s distributive share of items of partnership income or loss is included in his or her personal tax return.
True
A partner’s distributive share is generally determined in accordance with the partnership agreement.
True
If a partner lends money to his or her partnership as an outsider, the basis of his or her partnership shares is not affected.
False. When a partner lends money to his or her partnership as an outsider, his or her partnership basis is increased by his or her share of the partnership’s liability to him or her.
The basis of a contributing partner’s partnership interest is generally the amount of cash contributed plus the adjusted basis of the property he or she contributes to the partnership.
True
Taxable income may be realized by a contributing partner where services are contributed for an interest in the partnership capital.
True
A retiring partner’s share of the gain attributable to inventory is treated as ordinary income when the partnership liquidates the retiring partner’s interest.
True
Upon the liquidation of an interest in a service partnership, payments for goodwill are treated as capital gain regardless of whether they are mentioned as such in the partnership agreement.
False. If the partnership agreement specifies that payments will be made for goodwill, the partners receiving liquidating distributions will report payments for goodwill as capital gain, but the payments are not deductible by the partnership. If the agreement is silent as to goodwill, the payments are taxable to the partners as ordinary income and are deductible by the partnership.
A manufacturing partnership can deduct payments for unrealized receivables when liquidating a retiring partner’s interest.
False. Payments to a retiring partner that are attributable to unrealized receivables are not deductible by a manufacturing partnership. Although the retiring partner will treat such amounts as ordinary income, the partnership treats such amounts as made-for-partnership property. No deduction is allowed.
