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BRW Partnership reported gross income from operations of $60,000, interest income of $3,000, rental expense of $20,000, and a charitable contribution of $6,000.On its Schedule K, the partnership reports ordinary business income of $40,000, and separately stated interest income $3,000) and charitable contributions $6,000).

A) True
B) False

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Gina is a single taxpayer and an active partner in the GMA LLC.Gina's Schedule K-1 reflects a $20,000 ordinary income share, $2,000 of interest income, and a $10,000 guaranteed payment for services.Gina's self-employment income from other sources and modified adjusted gross income is about $300,000.With respect to the income from the LLC, Gina is subject to the 0.9% additional Medicare tax on $30,000 and the 3.8% net investment income tax of $2,000.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -Startup costs


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) I) and O)
R) A) and M)

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Match each of the following statements with the terms below that provide the best definition. -§ 179 deduction


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) A) and F)
R) D) and M)

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Maria owns a 60% interest in the KLM Partnership.Four years ago her father gave her a parcel of land.The gift basis of the land to Maria is $60,000.In the current year, Maria had still not figured out how to use the land for her own personal or business use; consequently, she sold the land to the partnership for $50,000.The partnership immediately started using the land as a parking lot for its employees.Maria may recognize her $10,000 loss on the sale.

A) True
B) False

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To meet the substantial economic effect tests, a partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -Limited partnership


A) Organizational choice of many large accounting firms.
B) Partner's percentage allocation of current operating income.
C) Might affect any two partners' tax liabilities in different ways.
D) Partnership in which partners are only liable for torts and malpractice.
E) Expense might be reported on either form 1065, page 1 or on Schedule K.
F) Transfer of asset to partnership followed by immediate distribution of cash to partner.
G) Must have at least one general and one limited partner.
H) Long-term capital gain might be recharacterized as ordinary income.
I) All partners are jointly and severally liable for entity debts.
J) Theory treating the partner and partnership as separate economic units.
K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L) Partnership's basis in asset after tax-free contribution of asset to partnership.
M) One way to calculate a partner's economic interest in the partnership.
N) Owners are "members."
O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P) Participates in management.
Q) Not liable for entity debts.
R) No correct match provided.

S) A) and P)
T) I) and O)

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Ken and Lars formed the equal KL Partnership during the current year, with Ken contributing $100,000 in cash and Lars contributing land basis of $60,000, fair market value of $40,000) and equipment basis of $0, fair market value of $60,000).Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -Inside basis


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) A) and B)
R) B) and D)

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The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

A) True
B) False

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Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?


A) No debt is allocated to LLC members because they are not liable for entity debts.
B) Nonrecourse debt is not allocated to general partners unless they personally guarantee the debt.
C) In a limited partnership, debt is only allocated to general partners.
D) In a limited liability partnership, debt is allocated among the managing partners, but not the partners with "limited liability."
E) For basis purposes, partnership debt is allocated among the partners even if no partner is personally liable for the debt.

F) A) and E)
G) None of the above

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Match each of the following statements with the terms below that provide the best definition. -Business interest


A) Organizational choice of many large accounting firms.
B) Partner's percentage allocation of current operating income.
C) Might affect any two partners' tax liabilities in different ways.
D) Partnership in which partners are only liable for torts and malpractice.
E) Expense might be reported on either form 1065, page 1 or on Schedule K.
F) Transfer of asset to partnership followed by immediate distribution of cash to partner.
G) Must have at least one general and one limited partner.
H) Long-term capital gain might be recharacterized as ordinary income.
I) All partners are jointly and severally liable for entity debts.
J) Theory treating the partner and partnership as separate economic units.
K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L) Partnership's basis in asset after tax-free contribution of asset to partnership.
M) One way to calculate a partner's economic interest in the partnership.
N) Owners are "members."
O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P) Participates in management.
Q) Not liable for entity debts.
R) No correct match provided.

S) A) and O)
T) F) and I)

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Patricia is a 25% owner and an active member in the PBK LLC, which operates a "qualified trade or business" for purposes of the deduction under § 199A.Patricia's distributive share of "qualified income" from the LLC is $250,000 for the year the LLC's income is $1,000,000) .Her share of the LLC's W-2 wages is $40,000, plus she received a guaranteed payment for services of $30,000.Her share of the LLC's "unadjusted basis immediately after acquisition of qualified property" is $1,200,000.How much is her qualified business income for this separate trade or business?


A) $20,000.
B) $35,000.
C) $40,000.
D) $47,500.
E) $50,000.

F) C) and D)
G) A) and B)

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In a limited liability company, all members are protected from all debts of the partnership unless they personally guaranteed the debt.

A) True
B) False

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The qualified business income deduction is calculated at the partner level.The partnership reports information the partner needs to calculate the deduction, such as W-2 wages and the unadjusted basis of the partnership's depreciable property.

A) True
B) False

Correct Answer

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George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP, LLC not a publicly-traded partnership interest).The future profits of the partnership are subject to normal operating risks.George will report ordinary income equal to the fair market value of the profits interest, but the capital interest will not be currently taxed to him.

A) True
B) False

Correct Answer

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Which of the following is not a specific adjustment to the partners' basis in the partnership interest?


A) Increased by contributions the partner made to the partnership.
B) Decreased by the amount of guaranteed payments shown on the partner's Schedule K-1.
C) Increased by the partner's share of tax-exempt income.
D) Decreased by any decrease in the partner's share of partnership liabilities.
E) Increased by the partner's share of separately stated income items.

F) None of the above
G) B) and E)

Correct Answer

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Blaine contributes property valued at $50,000 basis of $40,000) in exchange for a 25% interest in the BIKE Partnership.If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.

A) True
B) False

Correct Answer

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Match each of the following statements with the terms below that provide the best definition. -Precontribution gain


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) G) and O)
R) F) and J)

Correct Answer

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Molly is a 30% partner in the MAP Partnership.During the current tax year, the partnership reported ordinary income of $200,000 before any permitted deduction for guaranteed payments and distributions to partners.The partnership made an ordinary cash distribution of $20,000 to Molly, and paid guaranteed payments to partners Molly, Amber, and Pat of $20,000 each $60,000 total guaranteed payments) .How much will Molly's adjusted gross income increase as a result of the above items?


A) $36,000
B) $42,000
C) $60,000
D) $62,000
E) $80,000

F) A) and C)
G) A) and B)

Correct Answer

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