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A partnership's ordinary business income is taxed in the following way:
The income earned by the partnership is taxed to the entity and the partnership is responsible for paying any tax due.
Only the managing partners are individually taxed in a general partnership.
All partnership income is passed through to the individual partners who pay tax on their share of the income.
The ordinary income is always considered self-employment income to each of the partners in all types of partnerships.

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Lelia Lubowitz
Lelia LubowitzLv2
31 Dec 2018

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11. Bread Corporation is a C corporation with earnings of $150,000. It paid $60,000 of dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S Corporation. Butter had net taxable income of $40,000 and made a $30,000 distribution to Gerald. What total income will Gerald report from Bread and Butter’s activities?

$90,000

$190,000

$150,000

$100,000

12. At the first of the year, Arch and Bean contribute cash equally to form the JK partnership. Arch and Bean share profits and losses in a ratio of 75% to 25% respectively. For the current year, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during the current year. What amount of ordinary income should Bean report from the JK partnership?

$5,000

$20,000

$10,000

$40,000

13. Identify which of the following statements is true.
All cash distributions from a partnership require the partners to pay taxes on those distributions.

Distribution of partnership income in the form of cash to partners is generally taxable to the

partners as long as there is sufficient basis.

If property distributions exceed the partner's basis in the partnership interest, a partner would not have to recognize gain on a distribution from the partnership.

All of the above are true.

14. Stan had a basis in his 50% partnership interest at the beginning of this year of $20,000 in a partnership in which he actively participates. There was no change in partnership liabilities during the year. The partnership's ordinary loss this year was $60,000 and the partnership had no separately stated items. The deductible loss from the partnership reported on Stan's personal income tax return this year is

$20,000

$0


$60,000

$30,000

15. The Qualified Business Income Deduction applies to individuals who own an interest in a:

C Corporation

Both a Partnership and an S Corporation

A partnership

S Corporation

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.


8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

Regulations are
A. equal in authorityto legislation if statutory
B. equal in authorityto legislation
C. presumed to bevalid and to have almost the same weight as the IRC
D. equal in authorityto legislation if interpretative
2) Which of the followingstatements regarding proposed regulations is not correct?
A. Practitioners andother interested parties may comment on proposed regulations.
B. Proposedregulations expire after 3 years.
C. Proposed andtemporary regulations are generally issued simultaneously.
D. Proposedregulations do not provide any insight into the IRS'sinterpretation of the tax law.
3) Identify which of thefollowing statements is false.
A. Members from boththe House and the Senate are on the Conference Committee.
B. When tax advisorsspeak of the tax law, they usually have in mind just the InternalRevenue Code.
C. Records ofcommittee hearings are helpful in determining Congressionalintent.
D. All arefalse.
4) Which of the followingstatements about a partnership is true?
A. Partners are taxedon distributions from a partnership.
B. A partnership is ataxpaying entity.
C. Partners are taxedon their allocable share of income whether it is distributed ornot.
D. Partners areconsidered employees of the partnership.
5) Which of the followingstatements is incorrect?
A. The number of Scorporation shareholders is unlimited.
B. S corporationsmust allocate income and expenses to their shareholders based ontheir proportionate ownership interest.
C. S corporationincome is taxed to shareholders when earned.
D. S corporationlosses can offset shareholder income from other sources.
6) Which of the followingstatements is incorrect?
A. Limited partners'liability for partnership debt is limited to their amount ofinvestment.
B. In a generalpartnership, all partners have unlimited liability for partnershipdebts.
C. In a limitedpartnership, all partners participate in managerialdecision-making.
D. All of thestatements are correct.
7) Three members form an LLC inthe current year. Which of the following statements is incorrect?
A. The LLC can electto have its default classification ignored.
B. The LLC's defaultclassification under the check-the-box rules is as apartnership.
C. The LLC can electto be taxed as a C corporation with no special taxconsequences.
D. If the LLC electsto use its default classification, it can elect to change itsstatus to being taxed as a C corporation beginning with the thirdtax year after the initial classification.
8) Identify which of thefollowing statements is false.
A. Under thecheck-the-box regulations, an LLC that has only two members(owners) must be taxed as a partnership.
B. The check-the-boxregulations permit an LLC to be taxed as a C corporation.
C. A business neednot be incorporated under state or federal law to be taxed as acorporation.
D. Once an electionis made to change its classification, an entity cannot change againfor 60 months.
9) Identify which of thefollowing statements is true.
A. The check-the-boxregulations permit an LLC to be taxed as a C corporation.
B. Under thecheck-the-box regulations, an LLC that has only two members(owners) default classification is as a partnership.
C. Once an electionis made to change its classification, an entity cannot change againfor 60 months.
D. All of thestatements are true.
10) For Sec. 351 purposes theterm property does not include
A. accountsreceivable
B. cash
C. inventory
D. servicesrendered
11) Identify which of thefollowing statements is true.
A. The exchange ofstock for services rendered is not a taxable transaction.
B. The repeal of Sec.351 would result in more existing businesses beingincorporated.
C. Section 351 wasenacted to allow taxpayers to incorporate without incurring adversetax consequences.
D. All arefalse.
12) Barry, Dan, and Edithtogether form a new corporation; Barry and Dan each contributeproperty in exchange for stock. Within 2 weeks after the formation,the corporation issues additional stock to Edith in exchange forproperty. Barry and Dan each hold 10,000 shares and Edith willreceive 9,000 shares. Which transactions will qualify fornonrecognition?
A. Only the secondtransaction will qualify for nonrecognition.
B. Only the firsttransaction will qualify for nonrecognition.
C. Because of thestep transaction doctrine neither transaction will qualify.
D. Both transactionswill qualify under Sec. 351 if they are part of the same plan ofincorporation.

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