True/False Questions:
1. Partners must report their share of partnership net income on their individual tax returns in the year the income is distributed to them.
2. Every domestic partnership must file an annual tax return, regardless of its gross or net income.
3. A partner's basis in a partnership interest can never be reduced below zero.
4. A partnership deducts charitable contributions it makes during the year against partnership ordinary income.
5. The partners are liable for the tax on the partnership income, regardless of whether the income is actually distributed to them.
6. Distributions of cash or property from a partnership are generally treated as ordinary income to the partner.
7. Partners cannot be employees of a partnership.
8. A partnership does not pay tax on its profits.
9. Rental income, Section 179 expense deduction, and foreign taxes, are all examples of separately stated items.
10. Dividend income, charitable contributions, and rent expense, are all examples of separately stated
Multiple Choice Questions:
11. Which one of the following is not a deductible expense in computing partnership ordinary income?
a. Guaranteed payments to partners
b. Salaries and wages paid to persons who are not partners
c. Investment interest
d. Contributions to employee benefit plans
e. All of the above are deductible in computing partnership ordinary income
12. Which one of the following expenses is deductible in computing partnership ordinary income?
a. Interest expense on a business loan
b. Capital losses
c. Charitable contributions
d. Foreign taxes paid
e. All of the above are deductible in computing partnership ordinary income
13. Limited liability companies are:
a. another name for limited liability partnerships.
b. legal partnerships for purposes of state and federal income taxes.
c. popular because they provide the tax benefits of a corporation with the liability protection of a partnership.
d. flow-through entities for federal tax purposes.
e. none of the above.
14. Which of the following types of businesses would not be considered as a flow-through entity?
a. LLP
b. LLC
c. S corporations
d. C corporations
e. All of the above are considered flow-through entities.
15. Which one of the following income or expense items is included in the calculation of partnership ordinary income?
a. Dividend income
b. Rental income from real estate
c. Charitable contributions
d. Cost of goods sold
e. None of the above
16. Which of the following is not a separately stated item?
a. Rental income
b. Guaranteed payments
c. Interest expense
d. Interest income
e. All of the above are separately stated items
17. Which of the following is true regarding how partners treat guaranteed payments they receive from a partnership?
a. Guaranteed payments received for services rendered by the partner are subject to social security, Medicare, and income tax withholding by the partnership.
b. Guaranteed payments received for services rendered by the partner are not subject to social security or Medicare tax withholding, but are subject to income tax withholding by the partnership.
c. Guaranteed payments received for services rendered are subject to self-employment tax.
d. Guaranteed payments received for services rendered are reported by the partners that receive them on Schedule C.
e. Guaranteed payments received for services rendered are subject to social security and Medical tax withholding, but are not subject to income tax withholding by the partnership.
18. Where on the tax return does the partnership show the beginning and end of the year balances in the assets, liabilities, and capital accounts?
a. Schedule K
b. Schedule K-1
c. Schedule M-1
d. Schedule M-2
e. Schedule L
19. A reconciliation of a partnership's financial net income and the income (loss) reported on the Analysis of Net Income (loss) reported on page 1 of the partnership's tax return is shown on:
a. Schedule K
b. Schedule K-1
c. Schedule M-1
d. Schedule M-2
e. Schedule L
20. Which of the following increases a partner's basis in a partnership interest?
a. Cash distributions received from the partnership
b. A decrease in the liabilities of the partnership
c. The partner's allocable share of tax-exempt interest
d. The partner's allocable share of Section 179 expense
e. None of the above increases a partner's basis in the partnership interest
True/False Questions:
1. Partners must report their share of partnership net income on their individual tax returns in the year the income is distributed to them.
2. Every domestic partnership must file an annual tax return, regardless of its gross or net income.
3. A partner's basis in a partnership interest can never be reduced below zero.
4. A partnership deducts charitable contributions it makes during the year against partnership ordinary income.
5. The partners are liable for the tax on the partnership income, regardless of whether the income is actually distributed to them.
6. Distributions of cash or property from a partnership are generally treated as ordinary income to the partner.
7. Partners cannot be employees of a partnership.
8. A partnership does not pay tax on its profits.
9. Rental income, Section 179 expense deduction, and foreign taxes, are all examples of separately stated items.
10. Dividend income, charitable contributions, and rent expense, are all examples of separately stated
Multiple Choice Questions:
11. Which one of the following is not a deductible expense in computing partnership ordinary income?
a. Guaranteed payments to partners
b. Salaries and wages paid to persons who are not partners
c. Investment interest
d. Contributions to employee benefit plans
e. All of the above are deductible in computing partnership ordinary income
12. Which one of the following expenses is deductible in computing partnership ordinary income?
a. Interest expense on a business loan
b. Capital losses
c. Charitable contributions
d. Foreign taxes paid
e. All of the above are deductible in computing partnership ordinary income
13. Limited liability companies are:
a. another name for limited liability partnerships.
b. legal partnerships for purposes of state and federal income taxes.
c. popular because they provide the tax benefits of a corporation with the liability protection of a partnership.
d. flow-through entities for federal tax purposes.
e. none of the above.
14. Which of the following types of businesses would not be considered as a flow-through entity?
a. LLP
b. LLC
c. S corporations
d. C corporations
e. All of the above are considered flow-through entities.
15. Which one of the following income or expense items is included in the calculation of partnership ordinary income?
a. Dividend income
b. Rental income from real estate
c. Charitable contributions
d. Cost of goods sold
e. None of the above
16. Which of the following is not a separately stated item?
a. Rental income
b. Guaranteed payments
c. Interest expense
d. Interest income
e. All of the above are separately stated items
17. Which of the following is true regarding how partners treat guaranteed payments they receive from a partnership?
a. Guaranteed payments received for services rendered by the partner are subject to social security, Medicare, and income tax withholding by the partnership.
b. Guaranteed payments received for services rendered by the partner are not subject to social security or Medicare tax withholding, but are subject to income tax withholding by the partnership.
c. Guaranteed payments received for services rendered are subject to self-employment tax.
d. Guaranteed payments received for services rendered are reported by the partners that receive them on Schedule C.
e. Guaranteed payments received for services rendered are subject to social security and Medical tax withholding, but are not subject to income tax withholding by the partnership.
18. Where on the tax return does the partnership show the beginning and end of the year balances in the assets, liabilities, and capital accounts?
a. Schedule K
b. Schedule K-1
c. Schedule M-1
d. Schedule M-2
e. Schedule L
19. A reconciliation of a partnership's financial net income and the income (loss) reported on the Analysis of Net Income (loss) reported on page 1 of the partnership's tax return is shown on:
a. Schedule K
b. Schedule K-1
c. Schedule M-1
d. Schedule M-2
e. Schedule L
20. Which of the following increases a partner's basis in a partnership interest?
a. Cash distributions received from the partnership
b. A decrease in the liabilities of the partnership
c. The partner's allocable share of tax-exempt interest
d. The partner's allocable share of Section 179 expense
e. None of the above increases a partner's basis in the partnership interest
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Related questions
Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners.
Upon liquidation of the partnership, property will be distributed to the partners in accordance with their capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0.
In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600.
a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.
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Are any losses suspended for either partner?
No/Yes
b. Does the allocation provided in the partnership agreement have an "economic effect"?
No/Yes , because (1) gains, income, loss, etc., allocations are/are not reflected in capital account balances, (2) liquidating distributions are in accordance with average/beginning/end capital account balances, and (3) deficit capital accounts/outstanding loan balances must be restored.
