2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) All of the partners in a limited partnership have limited liability.

Limited partnership

B) A limited partnership must have at least two general partners.

C) A limited partnership cannot have a corporate general partner.

False

D) All are false.

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2.

On January 1, Helmut pays $2,000 for a 10% capital, profits and loss interest in a partnership, which has recourse liabilities of $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same year, the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000.

Helmut and the partnership use a calendar tax year-end.

A) $1,500.

B) $2,000.

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C) $3,500.

D) $3,900.

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3.

Recourse liabilities immediately preceding kasi&#8217

For a 20% interest in partnership capital, profits and losses, Kasi contributes a machine having a basis of $30,000 and a FMV of $40,000. The partnership also assumes a $24,000 recourse liability secured by the machine. The partnership has $6,000 in recourse liabilities immediately preceding Kasi’s contributions.

Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.

A) $10,800.

B) $12,000.

C) $13,200.

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D) $30,000.

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4.

David contributes investment land with a basis of $24,000 and a FMV of $40,000 to a partnership for a 10% interest in partnership capital, profits and losses. The land is subject to a $30,000 recourse liability, which is assumed by the partnership. The partnership has other recourse liabilities of $18,000.

Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.

000 capital gain

A) $3,000 capital gain.

B) $3,000 capital loss.

C) $1,200 capital gain.

D) $1,200 capital loss.

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5.

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) Tax-exempt interest received by a partnership is taxable to the partners if distributed.

B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items.

Gains/losses

C) The amount and character of any gains/losses is determined at the partnership level.

False

D) All are false.

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6.

Meg and Abby are equal partners in the AM Partnership which earns $40,000 ordinary income, $6,000 long-term capital gain (LTCG) and $2,000 Sec. 1231 loss during the current year.

A) $20,000 ordinary income, $3,000 LTCG, $1,000 Sec. 1231 loss

B) $19,000 ordinary income, $3,000 LTCG

C) $23,000 ordinary income, $1,000 Sec. 1231 loss

D) $22,000 ordinary income

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7.

At the formation of the BD Partnership, Betty contributes land with a basis of $10,000 and a FMV of $30,000 and Dick contributes cash of $30,000. Betty and Dick share profits and losses equally. When the land is sold two years later for $50,000, Betty must recognize a gain of

A) $10,000.

B) $20,000.

C) $30,000.

D) $40,000.

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8.

William and Irene each contribute $20,000 cash to the WI Partnership on January 1 of last year. William and Irene share profits and losses equally. Last year, the partnership reported tax-exempt interest income of $4,000. This year each partner receives $1,000 of the tax-exempt interest income in a cash distribution.

There are no partnership liabilities and no other income, loss, contributions or distributions during both years.

A) $19,000.

B) $20,000.

C) $21,000.

D) $22,000.

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9.

Miguel has a 50% interest in partnership capital, profits and losses. The basis for his partnership interest is $50,000. The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Miguel receives a distribution of land that has a FMV of $40,000 and an adjusted basis of $30,000.

The land is subject to a $15,000 liability which Miguel assumes.

A) $12,500.

B) $20,000.

C) $27,500.

D) $35,000.

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10.

Stan had a basis in his partnership interest at the beginning of last year of $30,000. There was no change in partnership liabilities during the year. His share of the partnership’s ordinary loss last year was $40,000 and the partnership had no separately stated items. This year Stan has a distributive share of ordinary income of $30,000.

A) $10,000 ordinary loss.

B) $20,000 ordinary income.

C) $30,000 ordinary income.

D) $40,000 ordinary income.

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11.

When computing the partnership’s ordinary income, a deduction is allowed for

A) contributions to charitable organizations.

B) net operating losses.

C) net short-term capital losses.

D) guaranteed payments to partners.

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12.

A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane’s capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits.

Diane’s basis in the partnership interest prior to Gary’s admission is $5,000.

A) no recognized gain or loss and a partnership interest basis of $10,000.

B) no recognized gain or loss.

C) recognized gain of $5,000 and a partnership interest basis of zero.

D) recognized gain of $5,000 and a partnership interest basis of $5,000.

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13.

Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?

A) $0

B) $4,000

C) $7,000

D) None of the above.

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14.

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) If a partnership asset with a deferred precontribution gain is distributed in a nonliquidating distribution to the partner who contributed the asset, the precontribution gain must be recognized by the partner.

B) The partner’s basis in the partnership interest is normally reduced by the FMV of property distributed in a nonliquidating distribution.

C) When a current distribution from a partnership reduces the basis of the partnership interest to zero, the partner’s interest in the partnership is terminated.

False

D) All are false.

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15.

The definition of “inventory” for purposes of Sec. 751 includes

A) cash.

B) land held for investment.

C) marketable securities not held by dealers.

D) depreciation recapture potential on Sec. 1231 assets.

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16.

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) A liquidating distribution that terminates a partnership interest cannot include more than one distribution.

B) A partnership with a large amount of unrealized receivables and substantially appreciated inventory items liquidated and distributed all of its assets in kind to each partner in proportion to their partnership interests. Each partner will report ordinary income at the time these assets are received equal to their FMV.

C) The rule for recognizing gain on a liquidating distribution is the same rule that is used for a current distribution.

False

D) All are false.

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17.

Ten years ago Latesha acquired a one-third interest in Dana Associates, a partnership, for $26,000 cash. This year Latesha’s entire interest in the partnership is liquidated when her basis is $24,000. Dana’s assets consist of the following: cash, $20,000; inventory with a basis of $46,000 and a FMV of $40,000.

Dana has no liabilities. Latesha receives the cash of $20,000 in liquidation of her entire interest.

A) $0

B) $4,000 long-term capital loss

C) $4,000 short-term capital loss and $2,000 ordinary loss

D) $4,000 long-term capital loss and $2,000 ordinary loss

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18.

Steve sells his 20% partnership interest having a $28,000 basis to Nancy for $40,000 cash. At the time of the sale, the partnership has no liabilities and its assets are as follows.

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Basis FMV

Cash $20,000 $20,000 

Unrealized receivables -0- 40,000

Inventory 10,000 40,000

Land (Sec. 1231) 110,000 100,000

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The receivables and inventory are Sec. 751 assets. There is no agreement concerning the allocation of the sales price. Steve must recognize

A) no gain or loss.

B) $12,000 ordinary income.

C) $12,000 capital gain.

D) $14,000 ordinary income and $2,000 capital loss.

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19.

A partnership terminates for tax purposes

A) only when it terminates under local partnership law.

B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months.

C) when the sale of partnership assets is made only to an outsider(s) and not to an existing partner(s).

D) when a partnership tax return (Form 1065) ceases to be filed by the partnership.

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20.

Which of the following statements is correct?

A) A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest.

B) The Section 754 election applies to both sales and distributions.

C) The Section 754 election applies to only current and nonliquidating distributions.

D) A partnership can revoke a Section 754 election every 5 years.

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21.

Which of the following are valid reasons for making a 754 election?

A) An incoming partner pays more for a partnership interest that his or her proportionate share of partnership assets.

B) Partners are able to increase their basis in the partnership interest upon the sale of a partnership interest.

C) Partnerships can increase, but not decrease, their basis in partnership assets.

D) A partnership can reduce its basis in assets upon cash distributions to partners.

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22.

Patrick purchased a one-third interest in the PPP partnership for $600,000. At the time of the purchase, the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000. This year, PPP sells the land for $1,800,000.

A) $0

B) $100,000

C) $300,000

D) none of the above

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23.

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.

B) A partnership can elect to be taxed as a corporation under the check-the-box regulations. As a corporation, an S election can be made.

C) For C corporations that desire to be taxed like a partnership, the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership.

D) All are true.

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24.

Which of the following corporate tax levies are imposed on an S corporation?

A) corporate income tax

B) corporate alternative minimum tax

C) accumulated earnings tax

D) None of these taxes are imposed on an S corporation.

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25.

Which of the following statements about stock ownership is not correct?

A) A C corporation can own stock of an S corporation.

B) An S corporation can own stock of a C corporation.

C) A tax-exempt charity can own stock of an S corporation.

D) An S corporation can own stock of a Qualified Subchapter S Subsidiary.

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26.

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) All of the shareholders of an S corporation must consent to a revocation of the S election.

B) A revocation of an S corporation election can be retrospective to any date.

C) An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P.

D) All are true.

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27.

2024 – Identify which of the following statements is true A All of the partners in a limited partnership have limited.

Identify which of the following statements is true.

A) An election for an S corporation to use the Sec. 179 expensing election is made by the corporation and not by its shareholders.

B) The S corporation’s separately stated items are in general the same ones that apply in partnership taxation.

C) An S corporation cannot claim a dividends-received deduction.

D) All are true.

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28.

Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000.

A) $0

B) $50,000

C) $100,000

D) $200,000

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29.

Identify which of the following statements is false.

A) Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy’s share of the corporation’s ordinary loss for the current year is $11,000. Ignoring the at-risk and passive activity limitations, Randy can deduct the loss in full.

B) A shareholder’s S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.

C) A shareholder’s ratable share of the S corporation’s ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.

D) Debt basis is restored before stock basis.

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30.

Identify which of the following statements is false.

A) The AAA balance can be negative, but the shareholder’s basis in the S corporation stock cannot be less than zero.

B) The AAA represents the cumulative income/loss recognized in post-1982 S corporation years.

C) Nonmoney property distributions made by an S corporation having accumulated E&P are treated differently when determining the corporate level gain recognized under Sec. 311 than are property distributions made by an S corporation without accumulated E&P.

D) Tax exempt income does not increase the AAA but increases the basis of the S corporation stock.