PTAX

Question 1

White has a one-third interest in the profits and losses of Rapid Partnership. Rapid’s ordinary income for the 2012 calendar year is $30,000, after a $3,000 deduction for a guaranteed payment made to White for services rendered. None of the $30,000 ordinary income was distributed to the partners. What is the total amount that White must include from Rapid as gross income in his 2012 tax return?

Answer 1

$13,000

Question 2

Beck and Nilo are equal partners in Associates, a general partnership. borrowed $10,000 from a bank on an unsecured note, thereby increasing each partner’s share of partnership liabilities. As a result of this loan, the basis of each partner’s interest in B&N was

Answer 2

Increased

Question 3

A guaranteed payment by a partnership to partner for services rendered may include an agreement to pay

I. A salary of $10,000 monthly without regard to partnership income.

II. A interest in partnership profits.

Answer 3

I only

Question 4

Hart’s adjusted basis for his interest in a partnership was $30,000. He received a nonliquidating distribution of $24,000 cash plus parcel of land with fair marke value and partnership basis of $9,000. Hart’s basis for the land is

Answer 4

$6,000

Question 5

The partnership of Felix and Oscar had the following items of income during the taxable year ended December 31, 2012:

Income from operations $156,000

Tax-exempt interest income 8,000

Dividends from foreign corporations 6,000

Net rental income 12,000

What is the total ordinary income of the partnership for 2012?

Answer 5

$156,000

Question 6

Jane, a 25% partner in Excel Partnership, received a $30,000 guaranteed payment in 2011 for services rendered to the partnership. Guaranteed payments to other partners for services rendered totaled $50,000. Excel’s 2011 partnership income consisted of

Net business income before guaranteed payments $160,000

Net long-term capital gains 50,000

What amount of income from Excel should Jane report from Excel Partnership on her 2011 tax return?

Answer 6

$62,500

Question 7

Partnership Adams, Baxter, Carter, and Dudley has the following partners’ interests:

Partner Partnership interest

Adams 45%

Baxter 30%

Carter 15%

Dudley 10%

The partners agree to separate and form the partnerships of Baxter & Carter and Adams & Dudley. What is(are) the effect (s) of the separation?

I. Partnership Baxter & Carter is considered new partnership and must adopt taxable year, as well as make other tax accounting elections.

II. Partnership Adams & Dudley is treated as continuation of the former partnership.

Answer 7

Both I and II

Question 8

In 2013 Peggy Pink contributed property to a new partnership in return for a 50% interest in capital and profits. The property had a fair market value of $10,000, an adjusted basis of $6,000, and was subject to a $9,000 mortgage which was assumed by the partnership. What was Pink’s basis in the partnership as a result of this contribution?

Answer 8

$1,500

Question 9

Olson, Wayne, and Hogan are equal partners in the OWH partnership. Olson’s basis in the partnership interest is $70,000. Olson receives a liquidating distribution of $10,000 cash and land with a fair market value of $63,000, and a basis of $53,000. What is Olson’s basis in the land?

Answer 9

$60,000

Question 10

The partnership of Spencer and Rey realized an ordinary’ loss of $42,000 in 2012. Both the partnership and the two partners are on a calendar-year basis. The partners materially participate in the partnership’s activities and share profits and losses equally. At December 31, 2012, Rey had an adjusted basis of $18,000 for his partnership interest before taking the 2012 loss into consideration. On his individual income tax return for 2012, Rey should deduct

Answer 10

An ordinary loss of $18,000.

Question 11

In computing the ordinary income of partnership, deduction is allowed for

Answer 11

Guaranteed payments to partners.

Question 12

Terry recently started a new business and is trying to decide what type of entity to form. What type of entity would best protect Terry, as one of the owners, from personal liability?

Answer 12

Limited liability

Question 13

In the absence of an election to adopt an annual accounting period, the required tax year for partnership is

Answer 13

A tax year of one or more partners with more than 50% interest in profits and capital.

Question 14

On November I, 2012, Kerry and Payne, each of whom was a 20% partner in the calendar-year partnership of Roe Co., partnership sold their partnership interests to Reed, who was a partner. For tax purposes, the Roe Co. partnership

Answer 14

Was terminated as of November I, 2012.

Question 15

Doris and Lydia are equal partners profits of Agee & Nolan, but are otherwise unrelated. The following information pertains to 300 shares of Mast Corp stock sold by Lydia to Agee & Nolan:

Year of purchase 2010

Year of sale 2013

Basis (cost) $9,000

Sales price (equal to fair market value) $4,000

The amount of long-term capital loss that Lydia recognized in 2013 on the sale of this stock was

Answer 15

$5,000

Question 16

Bailey contributed land with a fair market value of $75,000 and an adjusted basis of $25,000 to the ABC Partnership in exchange for 30% interest. The partnership assumed Bailey’s $10,000 recourse mortgage on the land. What is Bailey’s basis for his partnership interest?

Answer 16

$18,000

Question 17

Nolan designed Timber Partnership’s new building. Nolan received an interest in the partnership for the services. Nolan’s normal billing for these services would be $80,000 and the fair market value of the partnership interest Nolan received is $120,000. What amount of income should Nolan report?

Answer 17

$120,000

Question 18

At December 31, 2012, Lincoln and Ebert were equal partners in a partnership with net assets having a tax basis and fair market value of $150,000. On January 2, 2013, Gregory contributed securities with a fair market value of $75,000 (purchased in 2010 at a cost of $51,000) to become an equal partner in the new firm of Lincoln, Ebert, and Gregory. The securities were sold on July 1, 2013, for $78,000. How much of the partnership’s capital gain from the sale of these securities should be allocated to Gregory?

Answer 18

$25,000

Question 19

A guaranteed payment by a partnership to partner for services rendered, may include an agreement to pay

I. A salary of $10,000 monthly without regard to partnership income.

Il. A interest in partnership profits.

Answer 19

I only

Question 20

The holding period of partnership interest acquired in exchange for contributed capital asset begins on the date

Answer 20

The partner’s holding period of the capital asset began.

Question 21

The method used to depreciate partnership paperty is an election made by

Answer 21

The partnership and may be any method approved by the IRS.

Question 22

Brown, a partner in Brown & White, received distribution of $12,500 in the current year. What is the character of the payment that Brown received?

Answer 22

Current distribution.

Question 23

Dale was a 50% partner in D&P Partnership. Dale contributed $10,000 in cash upon the formation of the partnership. D&P borrowed $10,000 to purchase equipment. During the first year of operations, had $15,000 ordinary income, $2,000 tax-exempt interest income, a $3,000 distribution to each partner, and a $4,000 reduction of debt. At the end of the first year of operation, what amount would be Dale’s basis?

Answer 23

$18,500

Question 24

During the current year, Wayne sold the interest he had held for 5 years in the Alco Partnership for $15,000 cash. The buyer also assumed Wayne’s $2,000 share of the partnership liabilities. Wayne’s tax basis in the partnership was $11,000. The Alco Partnership had no unrealized receivables nor appreciated inventories. What is Wayne’s gain on the sale of his partnership interest in Alco?

Answer 24

$6,000 long-term capital gain.

Question 25

The partnership of Bond and Felton has a fiscal year ending September 30. John Bond files his tax return on a calendar-year basis. The partnership paid Bond a guaranteed salary of $1,000 per month during the calendar year 2011 and $1,500 a month during the calendar year 2012. After deducting this salary the partnership realized ordinary income of $80,000 for the year ended September 30, 2012, and $90,000 for the year ended September 30, 2013. Bond’s share of the profits is the salary paid him plus 40% of the ordinary income after deducting this salary. For 2012, Bond should report taxable income from the partnership of

Answer 25

$48,500

Question 26

Mike Reed, partner in Post Co., received the following distribution from Post:

              Post's basis        Fair market value   

Cash $11,000 $11,000

Land 5,000 12,500

Before this distribution, Reed’s basis in Post was $25,000. If this distribution were nonliquidating, Reed’s recognized gain or loss on the distribution would be

Answer 26

$0

Question 27

On January I, 2012, the partners interests in the capital, profits, and losses of Mulford Partnership were

          Percent of capitaI, profits, and losses

Rick 25%

Tim 20%

Jon 55%

On January 7, 2012, Tim sold his entire interest to an unrelated person. Rick sold his interest in Mulford to another unrelated person on July 7, 2012. No other transfers of partnership interests took place during 2012. For tax purposes, which of the following statements is correct with respect to the Mulford Partnership?

Answer 27

Mulford did not terminate

Question 28

Smith received a one-third interest in a partnership by contributing $3,000 in cash, stock with a fair market value of $5,000 and basis of $2,000, and new computer that cost Smith $2,500. Which of the following amounts represents Smith’s basis in the partnership?

Answer 28

$7,500

Question 29

Molloy contributed $40,000 in cash in exchange for a one-third interest in the RST Partnership. In the first year of partnership operations, RST had taxable income of $60,000. In addition, Molloy received a $5,000 distribution of cash and, at the end of the partnership year, Molloy had a one-third share in the $18,000 of partnership recourse liabilities. What was Molloy’s basis in RST at year-end?

Answer 29

$ 61,000

Question 30

Kerr and Marcus form KM Partnership with a cash contribution of $30,000 from Kerr and a property contribution of land from Marcus. The land has a fair market value of $80,000 and an adjusted basis of $50,000 at the date of the contribution. Kerr and Marcus are equal partners. What is Marcus’s basis immediately after formation?

Answer 30

$50,000

Question 31

Heath acquired interest in the Dentists Partnership by contributing property with an adjusted basis of $100,000. Heath would recognize gain if

I. The fair market value of the contributed property exceeds its adjusted basis.

II. The property is encumbered by mortgage with balance of $50,000.

Answer 31

Neither I or II

Question 32

Fern received $30,000 in cash and an automobile with an adjusted basis and market value of $20,000 in a proportionate liquidating distribution from EF Partnership. Fern’s basis in the partnership interest was $60,000 before the distribution. What is Fern’s basis in the automobile received in the liquidation?

Answer 32

$30,000

Question 33

Stone’s basis in Ace Partnership was $70,000 at the time he received a nonliquidating distribution of partnership capital assets. These capital assets had an adjusted basis of $65,000 to Ace, and a fair market value of $83,000. Ace had no unrealized receivables, appreciated inventory, or properties which had been contributed by its partners. What was Stone’s recognized gain or loss on the distribution?

Answer 33

$0

Question 34

The basis of property (other than money) distributed by a partnership to partner, in complete liquidation of the partner’s interest, shall be an amount equal to the

Answer 34

Adjusted basis of such partner’s interest in the partnership, reduced by any money distributed in the same transaction.

Question 35

Which of the following limitations may apply in determining the allowable deduction for partner’s distributive share of partnership losses?

a. At risk
b. Passive loss
c. At risk and Passive loss
d. Neither

Answer 35

At risk and Passive loss

Question 36

On July I, 2013, Lydia Amador received a 10% interest in the capital of Nido Associates, a partnership, for services rendered. Nido’s net assets at July 1 had a basis of $70,000 and a fair market value of $100,000. What income must Lydia include in her 2013 tax return for the partnership interest transferred to her by the other partners?

Answer 36

$10,000 ordinary income.

Question 37

The adjusted basis of Smith’s interest in EVA partnership was $230,000 immediately before receiving the following distribution in complete liquidation of EVA:

                  Basis to EVA        Fair market value

Cash $150,000 $150,000

Real estate 120,000 146,000

What is Smith’s basis in real estate?

Answer 37

$80,000

Question 38

In 2013, Dave Burr acquired a 20% interest in a partnership by contributing a parcel of land. At the time of Burr’s contribution, the land had a fair market value of $35,000, an adjusted basis to Burr of $3,000, and was subject to a mortgage of $12,000. Payment of the mortgage was assumed by the partnership. Burr’s basis for his interest in the partnership is

Answer 38

$0

Question 39

Owen’s tax basis in Regal Partnership was $18,000 at the time Owen received a nonliquidating distribution of $3,000 cash and land with an adjusted basis of $7,000 to Regal and a fair market value of $9,000. Regal did not have unrealized receivables, appreciated inventory, or properties that had been contributed by its partners. Disregarding any income, loss, or any other partnership distribution for the year, what was Owen’s tax basis in Regal after the distribution?

Answer 39

$8,000

Question 40

Gladys Peel owns an 80% interest in the capital and profits of the partnership of Peel & Poe. On July I, 2012, Peel bought surplus land from the partnership at the land’s fair market value of $10,000. The partnership’s basis in the land was $16,000. For the year ended December 31, 2012, the partnership’s net income was $94,000 after recording the $6,000 loss on the sale of land. Peel’s distributive share of ordinary income from the partnership for 2012 was

Answer 40

$80,000

Question 41

On June 1, 2013, Steve Maslan received a 20% capital interest in Gress Associates, a partnership, in return for services rendered plus a contribution of assets with a basis to Maslan of $15,000 and a fair market value of $20,000. The fair market value of Maslan’s 20% interest was $33,000. How much is Maslan’s basis for his interest in Gress?

Answer 41

$33,000

Question 42

Which of the following can be an advantage of limited liability company over an S corporation?

Answer 42

Appreciated property can be distributed tax-free to an owner.

Question 43

A $100,000 increase in partnership liabilities is treated in which of the following ways?

a. Does not change any partner’s basis in the partnership regardless of whether the liabilities are recourse or nonrecourse.
b. Increases each partner’s basis in the partnership by $100,000.
c. Increases each partner’s basis in proportion to their ownership.
d. Increases the partners’ bases only if the liability is nonrecourse.

Answer 43

Increases each partner’s basis in proportion to their ownership.

Question 44

Reid, Welsh, and May are equal partners in the RWM partnership. Reid’s basis in the partnership interest is $60,000. Reid receives a liquidating distribution of $61,000 cash and land with a fair market value of $14,000 and an adjusted basis of $12,000. What gain must Reid recognize upon the liquidation of his partnership interest?

Answer 44

$1,000

Question 45

In January 2012, Martin and Louis formed a partnership with each contributing $75,000 cash. The partnership agreement provided that Martin would receive a guaranteed payment of $20,000 and that partnership profits and losses (computed after deducting Martin’s guaranteed payment) would be shared equally. For the year ended December 31, 2012, the partnership’s operations resulted in a loss of $18,000 after deducting the $20,000 guaranteed payment made to Martin. The partnership had no outstanding liabilities as of December 31, 2012. What is the amount of Martin’s basis for his partnership interest as of December 31, 2012?

Answer 45

$66,000

Question 46

The CSU partnership distributed to each partner cash of $4,000, inventory with a basis of $4,000 and a fair market value (FMV) of $6,000, and land with an adjusted basis of $5,000 and an FMV of $3,000 in a liquidating distribution. Partner Chang had an outside basis in Chang’s partnership interest of $12,000. In the second year after receiving the liquidating distribution, Chang sold the inventory for $5,000 and the land for $3,000. What income must Chang report upon the sale of these assets?

Answer 46

$1,000 ordinary gain and $1,000 capital loss

Question 47

In August 2012, Jason Teeters bought 200 shares of a listed stock for $25,000. In September 2012, Teeters sold this stock for its fair market value of $28,000 to the partnership of Bass, Bell, and Teeters. Teeters had a one-third interest in this partnership. In Teeters’ 2012 tax return, what amount should be reported as short- term capital gain as a result of this transaction?

Answer 47

$3,000

Question 48

The at-risk limitation provisions of the Internal Revenue Code may limit

I. A partner’s deduction for his or her distributive share of partnership losses.

II. A partnership’s net operating loss carryover.

Answer 48

I only

Question 49

On January I, 2013, Fred was a 25% equal partner in Reingold General Partnership, which had partnership liabilities of $500,000. On January 2, 2013, a new partner was admitted and Fred’s interest was reduced to 20%. On May 9, 2013, Reingold repaid a $150,000 general partnership loan. Ignoring any income, loss, or distributions for 2013, what was the net effect of the two transactions on Fred’s tax basis in his Reingold partnership interest?

Answer 49

Decrease of $55,000

Question 50

Walker transferred property used in a sole proprietorship to the WXYZ partnership in exchange for a one-fourth interest. The property had an original cost of $75,000, an adjusted tax basis to Walker of $20,000, and fair market value of $50,000. The partnership has no liabilities. What is Walker’s basis in the partnership interest?

Answer 50

$20,000

Question 51

A partnership had four partners. Each partner contributed $100,000 cash. The partnership reported income for the year of $80,000 and distributed $10,000 to each partner. What was each partner’s basis in the partnership at the end of the current year?

Answer 51

$110,000

Question 52

Baker is a partner in EDT with a partnership basis of $60,000. EDT made a liquidating distribution of land with an adjusted basis of $75,000 and fair market value of $40,000 to Baker. What amount of gain or loss should Baker report?

Answer 52

$0

Question 53

Ted King’s adjusted basis for his partnership interest in Troy Company was $24,000. In complete liquidation of his interest in Troy, King received cash of $4,000 and realty having a fair market value of $40,000. Troy’s adjusted basis for this realty was $15,000. King’s basis for the realty is

Answer 53

$20,000

Question 54

Irving Aster, Dennis Brill, and Robert Clark were partners who shared profits and losses equally. On February 28, 2012, Aster sold his interest to Phil Dexter. On March 31, 2012, Brill died, and his estate held his interest for the remainder of the year. The partnership continued to operate and for the fiscal year ending June 30, 2012, it had a profit of $45,000. Assuming that partnership income was earned on a rata monthly basis and that all partners were calendar-year taxpayers, the distributive shares to be included in 2012 gross income should be

Answer 54

Aster $10,000, Brill $11,250, Estate of Brill $3,750, Clark $15,000, and Dexter $5,000.

Question 55

Which of the following statements regarding partnership’s tax year is correct?

a. Within 30 days after a partnership has established a tax year, a form must be filed with the IRS as notification of the tax year adopted.
b. A partnership may elect to have a tax year other than the generally required tax year if the deferral period for the tax year elected does not exceed 3 months.
c. A “valid business purpose” can no longer be claimed as a reason for adoption of a tax year other than the generally required tax year.
d. A partnership formed on July I is required to adopt a tax year ending June 30.

Answer 55

A partnership may elect to have a tax year other than the generally required tax year if the deferral period for the tax year elected does not exceed 3 months.

Question 56

Clark and Lewis are partners who share profits and losses 60% and 40%, respectively. The tax basis of each partner’s interest in the partnership as of December 31, 2010 was as follows:

Clark $24,000

Lewis $18,000

During 2012, the partnership had ordinary income of $50,000 and a long-term capital loss of $10,000 from the sale of securities. There were no distributions to the partners during 2012. What is the amount of Lewis’ tax basis as of December 31, 2012?

Answer 56

$34,000

Question 57

Which of the following is an advantage of forming a limited liability company (LLC) as opposed to partnership?

a. The owner may participate in management while limiting personal liability.
b. The entity may make disproportionate allocations and distributions to members.
c. The entity may avoid taxation.
d. The entity may have any number of owners.

Answer 57

The owner may participate in management while limiting personal liability.

Question 58

When partner’s share of partnership liabilities increases, that partner’s basis in the partnership

Answer 58

Increases by the partner’s share of the increase.

Question 59

On December 31, after receipt of his share of partnership income, Clark sold his interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of $15,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or substantially appreciated inventory. What is Clark’s gain or loss on the sale of his partnership interest?

Answer 59

Capital gain of $15,000.

Question 60

The individual partner rather than the partnership makes which of the following elections?

a. Election to amortize organizational costs.
b. Whether to take a deduction or credit for taxes paid to foreign countries.
c. Nonrecogniticn treatment for involuntary conversion gains.
d. Code section 179 deductions for tangible personal property.

Answer 60

Whether to take a deduction or credit for taxes paid to foreign countries.