Tax Reporting for Partnerships Flashcards
Acme Axles operates only within the United States. This company has 15 partners and has elected to be classified as a limited liability partnership. When reporting its activities at the end of its tax year, which forms will it use for the partnership as a whole and for its individual partners?
(Search Chapter 1)
* a. Form 1065 and Schedule K-1 (Form 1120)
* b. Form 1120 and Schedule K-1 (Form 1065)
* c. Form 1120-S and Schedule K-1 (Form 1065)
* d. Form 1065 and Schedule K-1 (Form 1065)
d. Form 1065 and Schedule K-1 (Form 1065)
Rick is a partner in a partnership in which the following events took place last year. At the beginning of the year, his basis in the partnership was $75,000. Which one of these events did not cause his basis in the partnership to decrease?
(Search Chapter 2)
a. Rick received a distribution of $10,000 from the partnership.
b. Rick contributed $1,500 to the partnership.
c. Rick’s distributive share of partnership losses was $3,000.
d. The partnership assumed liability of a $5,000 loan that had been in Rick’s name.
b. Rick contributed $1,500 to the partnership.
A partnership acquired $10,000 of recourse liabilities and $3,000 of nonrecourse liabilities last year. The recourse liabilities are attributable in full to Jane, who is a 50 percent partner. Jane’s basis at the start of the year was $12,000. How much is her basis at the end of the year when these liabilities are taken into consideration?
(Search Chapter 2)
a. $0
b. $13,500
c. $23,500
d. $500
c. $23,500
That’s correct! Jane’s basis of $12,000 is increased by 50 percent of the nonrecourse liabilities
($3,000 ÷ 2). However, her basis is also increased by the full amount of the recourse liabilities
($10,000) because she is solely responsible for this debt.
Test
According to the partnership agreement, Mike is entitled to receive a guaranteed payment of $15,000 each year from the partnership, regardless of its income. He is also entitled to a distributive share of income at the rate of 10 percent. Last year, the partnership had $65,000 of ordinary income before deducting the guaranteed payment. What is the total amount of income (i.e., guaranteed payments + distributive share) that Mike received from the partnership for last year?
(Search Chapter 3)
* a. $20,000
* b. $15,000
* c. $10,000
* d. $8,000
a. $20,000
That’s correct! Mike received $15,000 in guaranteed income as well as a distributive share. This
share is 10 percent of the partnership’s ordinary income after the guaranteed payment is deducted.
Thus, it is 10 percent of ($65,000 – $15,000 = $50,000). Mike’s total payment received is therefore
$20,000 (5,000 guaranteed + 5,000 distributive).
Which of the following information would be found on Form 1065 Schedule K-1 issued by a
partnership to one of its partners?
A. whether the partner is a general partner
B. the partner’s share of profit
C. the method of accounting used to compute the partner’s capital account
D. all of the above
D. all of the above
That’s correct! Details of the partner’s status within the partnership, the percentage share of profit
to which he or she is entitled, and the accounting method for the partner’s capital account can all
be found on Schedule K-1.
According to the example in this chapter, Bill and Ben Partners suffered a net loss of $550 in its
business activities last year. If the partnership had made a net profit of $550 instead of a loss,
what number would appear in Section L of Ben’s Form 1065 Schedule K-1 in the “Ending capital
account” line?
A. $19,725
B. $20,275
C. $20,000
D. $0
B. $20,275
That’s correct! As a 50 percent owner, Ben would benefit from 50 percent of the profit. This
amount of $275 would be added to his prior capital account balance of $20,000, and the ending
capital account balance would become $20,275.
Test
Along with an individual taxpayer, which of the following type(s) of entity can be a partner in a general partnership?
(Search Chapter 1)
a. a corporation
b. a trust
c. LLC
d. all of the above
d. all of the above
Test
Which one of the following types of partners is not liable for self-employment tax on his or her distributive share of partnership income?
(Search Chapter 1)
a. professional partner
b. limited partner
c. general partner
d. planning partner
b. limited partner
Test
Linda is a partner in a partnership in which the following events took place last year. At the beginning of the year, her basis in the partnership was $50,000. Which one of these events caused her basis in the partnership to increase?
(Search Chapter 2)
a. She received a distribution of $5,000 from the partnership.
b. Her distributive share of partnership losses was $1,500.
c. She contributed $3,000 cash to the partnership.
d. The partnership assumed liability of a $2,000 loan that had been in Linda’s name.
c. She contributed $3,000 cash to the partnership.
Test
Thomas was informed by his accountant that his basis in the partnership in which he is a partner had increased last year. Which one of the following events would cause this to happen?
(Search Chapter 2)
a. Thomas received property from the partnership with an adjusted basis of $10,000.
b. Thomas contributed property valued at $50,000 to the partnership.
c. The partnership took responsibility for Thomas’ $9,000 car loan.
d. The accountant allocated to Thomas a $500 deduction as his distributive share of depletion on property owned by the partnership.
b. Thomas contributed property valued at $50,000 to the partnership.
Test
According to the partnership agreement, Helen is entitled to receive the fixed amount of $12,000 each year from the partnership, regardless of its income. She is also entitled to a distributive share of income at the rate of 20 percent. Last year, the partnership had $52,000 of ordinary income before deducting the guaranteed payment. What is the total amount of partnership income that Helen should have received for last year?
(Search Chapter 3)
a. $12,000
b. $17,200
c. $20,000
d. $30,000
c. $20,000
52k - 12k = 40k
40k x .20 = 8k
12k + 8k = 20k
Test
Dave is a partner in a partnership from which he received $10,000 in guaranteed payments last year. He also was entitled to a 15 percent distributive share of the partnership’s profits, although this payment was never actually distributed. Given that the partnership made a profit of $20,000 last year after deducting the guaranteed payment, how much income should Dave declare on his personal tax return?
(Search Chapter 3)
a. $7,000
b. $16,000
c. $11,500
d. $13,000
d. $13,000
10k + 3k = 13k
(15% of 20k = 3k)
Test
When the Pretty Polly partnership was formed to breed exotic birds, it was decided that the business would operate on a fiscal year basis from July to June to better coincide with the breeding season of its livestock. When is the latest possible date (not including extensions) for the partnership to file its return for the 2021 tax year without incurring a late penalty?
(Search Chapter 4)
a. December 31, 2022
b. September 15, 2022
c. April 15, 2022
d. March 15, 2022
b. September 15, 2022
Test
What type of information is contained in a completed Schedule L of Form 1065 for a partnership?
(Search Chapter 4)
a. a summary of the payments and distributions made to the partners
b. a reconciliation of the partnership’s income and losses according to its books
c. a summary of the capital accounts of the partners
d. the partnership’s balance sheet according to its books for the start and end of its tax year
d. the partnership’s balance sheet according to its books for the start and end of its tax year
Test
On which form and section should the guaranteed payments made to partners be recorded on the partnership tax return?
(Search Chapter 5)
a. Form 1065: Deductions
b. Schedule K-1: Partner’s Share of Current Year Income
c. Schedule K: Income (Loss)
d. all of the above
d. all of the above
