Partnership Taxation

Question 1

Subject: Partnership Taxation
True or False- Compensation (ordinary) income is recognized if services are transferred in exchange for and interest in partnership capital.

Answer 1

Subject: Partnership Taxation
True
Compensation (ordinary) income is recognized if SERVICES are transferred in exchange for and interest in partnership capital.

Question 2

Subject: Partnership Taxation
True or False- Recognition of loss is disallowed on a sale or exchange between a partnership and a person who owns (directly or constructively) more than 80% partnership interest.

Answer 2

Subject: Partnership Taxation
False
Recognition of loss is disallowed on a sale or exchange between a partnership and a person who owns (directly or constructively) more than 50% partnership interest.

Question 3

Subject: Partnership Taxation

Define Guarantee payments

Answer 3

Subject: Partnership Taxation
Guaranteed payments are deductible services rendered to the partnership that must be subtracted from the partnership’s net business income before allocation occurs.

Question 4

Subject: Partnership Taxation

How are losses and gains recognized in a non-liquidating partnership distribution?

Answer 4

Subject: Partnership Taxation
A loss can never be recognized as a result of a prorate non-liquidating partnership distribution
A gain will only be recognized if the amount of the cash received exceeds the basis of the partner’s partnership interest.

Question 5

Subject: Partnership Taxation

List the separately stated items on a Schedule K

Answer 5

Subject:  Partnership Taxation
Separately stated items on Schedule K
1.  Capital gains and losses
2.  Section 1231 gains and losses
3.  Charitable contributions
4 Foreign income taxes
5. Section 179 expense deduction
6.  Interest/ dividends/ royalty income
7.  Interest expense on investment indebtedness
8.  Net Income/ Loss from rental or real estate activity.

Question 6

Subject: Partnership Taxation

List the ordinary income items included on the Partnership Return.

Answer 6

Subject:  Partnership Taxation
Ordinary income items included on the Partnership Return.
1.  Sales less COGS
2.  Business expenses
3.  Guaranteed payments to partners
4.  Depreciation
5.  Amortization (over 180 months) of partnership organization expenses
6.  Section 1245, 1250, etc. recapture

Question 7

Subject: Partnership Taxation
True or False- A partnership interest is a capital asset and a sale generally results in a capital gain or loss in all situations.

Answer 7

Subject: Partnership Taxation
False
A partnership interest is a capital asset and a sale generally results in a CAPITAL gain or loss EXCEPT that ORDINARY INCOME must be reported to the extent of the selling partner’s share of unrealized receivable and appreciated inventory.

Question 8

Subject: Partnership Taxation

How is a decrease in a partner’s share of liabilities treated?

Answer 8

Subject: Partnership Taxation
A DECREASE in the partner’s share of liabilities is considered to be a deemed distribution of money and reduces a partner’s basis for the partnership interest.

Question 9

Subject: Partnership Taxation
When is gain recognized in the case of appreciated property being transferred to a partnership in exchange for a partnership interest

Answer 9

Subject: Partnership Taxation
Gain will be recognized if the transferred property is encumbered by a mortgage, and the partnership’s assumption of that mortgage results in a decrease in the transferor’s individual liabilities that exceeds the basis of the property transferred.

Question 10

Subject: Partnership Taxation
True or False- A taxpayer must recognize ordinary income when a capital interest in a partnership is received as compensation for services rendered.

Answer 10

Subject: Partnership Taxation
True
A taxpayer must recognize ordinary income when a capital interest in a partnership is received as compensation for SERVICES rendered

Question 11

Subject: Partnership Taxation

What is the holding period for a partnership interest acquired in exchange for a contributed capital asset?

Answer 11

Subject: Partnership Taxation
If asset contributed is a 1231 asset- the holding period includes the period of time the asset was held by the partner.
All other contributed property- holding period begins when the partnership interest is acquired.

Question 12

Subject: Partnership Taxation

What are the organizational expenditure rules for partnerships?

Answer 12

Subject: Partnership Taxation
A partnership may deduct up to $5,000 of organizational expenditures for the tax year In which the partnership begins business, with any remaining expenditures deducted ratably over the 180 month period beginning with the month in which the partnership begins business.

Question 13

Subject: Partnership Taxation

True or False- Syndication fees are deductible as organizational expenditures

Answer 13

Subject: Partnership Taxation
False
Syndication fees include the costs connected with the issuing and marketing of partnership interests such as commissions, professional fees, and printing costs. These costs must be capitalized and can nether be amortized nor depreciated.

Question 14

Subject: Partnership Taxation
True or False- A partner’s distributive share of partnership losses is generally deductible to the extent of the tax basis for the partner’s partnership interest at the end of the year.

Answer 14

Subject: Partnership Taxation
True
A partner’s distributive share of partnership losses is generally deductible to the extent of the tax basis for the partner’s partnership interest at the end of the year.

Additionally, the deductibility of partnership losses is limited to the amount of the partner’s at-risk basis, and will also be subject to the passive activity loss limitations if they are applicable.

Question 15

Subject: Partnership Taxation
True or False- In a family partnership, services performed by family members must first be reasonably compensated before income is allocated according to the capital interests of the partners.

Answer 15

Subject: Partnership Taxation
True
In a family partnership, services performed by family members must first be reasonably compensated before income is allocated according to the capital interests of the partners.

Question 16

Subject: Partnership Taxation
True or False- If a person engages in a transaction with a partnership other than as a partner of such partnership, any resulting gain is generally recognized just as if the transaction had occurred with a non-partner.

Answer 16

Subject: Partnership Taxation
True
If a person engages in a transaction with a partnership other than as a partner of such partnership, any resulting gain is generally recognized just as if the transaction had occurred with a non-partner.

Question 17

Subject: Partnership Taxation

What are the rules when a partnership determines its taxable year?

Answer 17

Subject: Partnership Taxation
A partnership must generally determine its taxable year in the following order.
1. It must adopt the taxable year used by its one or more partners owning an aggregate interest of more than 50% in profits and capital.
2. If partners owning a more than 50% interest in profits and capital do not have the same year-end, the partnership must adopt the same taxable year as used by all of its principal partners and
3. If principal partners have different taxable years, the partnership must adopt the taxable year that results in the least aggregate deferral of income to partners.

Question 18

Subject: Partnership Taxation

A partnership will be terminated when one of the following three situations occur

Answer 18

Subject: Partnership Taxation
A partnership will be terminated when one of the following situations occur
1. There are no longer at least two partners or..
2. No part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership or..
3. Within a twelve month period there is a sale or exchange of 50% or more of the total interest in partnership capital and profits.

Question 19

Subject: Partnership Taxation

Does a deceased partner’s partnership interest terminate at the date of death or date of liquidation?

Answer 19

Subject: Partnership Taxation

A deceased partner’s partnership interest terminates at the date of liquidation.

Question 20

Subject: Partnership Taxation
If both cash and noncash property are received in a single non- liquidating distribution, what is the order of the basis reduction?

Answer 20

Subject: Partnership Taxation
If both cash and noncash property are received in a single non- liquidating distribution, the order of the basis reduction is
1. Cash
2. Non-Cash property

The partner’s basis for distributed property will be limited to the partner’s basis for the partnership interest reduced by any cash received in the same distribution.

Question 21

Subject: Partnership Taxation
True or False- Distributions of property other than money never result in the recognition of gain by the distributee partner.

Answer 21

Subject: Partnership Taxation
True
Distributions of property OTHER THAN MONEY never result in the recognition of gain by the distributee partner.

Question 22

Subject: Partnership Taxation
True or False- For a partner in a partnership, a gain would only be recognized if the decrease in the partner’s liability exceeds his or her partnership basis.

Answer 22

Subject: Partnership Taxation
True
For a partner in a partnership, a gain would only be recognized if the decrease in the partner’s liability exceeds his or her partnership basis.

Question 23

Subject: Partnership Taxation
True or False- Cash distributions are generally considered a return of the partner’s investment and are nontaxable. However, they do reduce the partners’ basis in the partnership.

Answer 23

Subject: Partnership Taxation
True
Cash distributions are generally considered a return of the partner’s investment and are nontaxable. However, they do reduce the partners’ basis in the partnership.