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Exam 14: Partnerships and Limited Liability Entities

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Question 61

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

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) Brokerage and registration fees incurred for promoting and marketing partnership interests.
E) Transfer of asset to partnership followed by immediate distribution of cash to partner.
F) Must have at least one general and one limited partner.
G) All partners are jointly and severally liable for entity debts.
H) Theory treating the partner and partnership as separate economic units.
I) Partner's basis in partnership interest after tax-free contribution of asset to partnership.
J) Partnership's basis in asset after tax-free contribution of asset to partnership.
K) Owners are "members."
L) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
M) Allows many unincorporated entities to select their Federal tax status.
N) No correct match provided.

O) E) and H)
P) C) and F)

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Question 62

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​Which one of the following allocations is most likely to meet the "substantial" test in the "substantial economic effect" rules? (Assume all the "economic effect" tests are met.)

A) ​The ROY LLC specially allocates $20,000 of income each year to partner Red with no offsetting loss allocations in other years.
B) ​The YGB LLC specially allocates $30,000 of ordinary income this year to partner Green with an offsetting allocation of loss in that same amount next year.
C) ​The BPV LLC specially allocates $10,000 of capital gains to Violet and $10,000 of interest income to Purple because Purple is in a lower tax bracket.
D) ​The PIR LLC specially allocates $60,000 of income to Indigo with no offsetting allocations.Indigo has expiring net operating losses.

E) All of the above
F) C) and D)

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Question 63

Multiple Choice

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Which one of the following statements regarding partnership taxation is incorrect?

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Tim, Al, and Pat contributed assets to form the equal TAP Partnership.Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000) .Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000) .Pat contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000.Which of the following tax treatments is not correct?

William is a general partner in the WST partnership.During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000.William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.

On the formation of a partnership, when might a "disguised sale" occur? How can this treatment be avoided?

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

Stephanie is a calendar year cash basis taxpayer.She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end.The partnership's operating income (after deducting guaranteed payments) was $120,000 ($10,000 per month) and $144,000 ($12,000 per month) , respectively, for the partnership tax years ended September 30, 2016 and 2017.The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30, 2016 and 2017.How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31, 2016?

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

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

MNO Partnership has three equal partners.Moon, Inc.and Neptune, Inc.each have fiscal years ending March 31.Omega uses the calendar year.MNO's taxable year end must be determined using the least aggregate deferral method, and is December 31. ​

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

The taxable income of a partnership flows through to the partners, who report the income on their tax returns.