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If a partnership allocates losses to the partners, the partners must first apply the passive loss limitations, then the basis limitation, and finally the at-risk limitations.If all three hurdles are met, the partner may deduct the loss.

A) True
B) False

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At the beginning of the tax year, Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.Zach is an active general partner and has no passive income or business losses from other sources.For the tax year, Zach will report:


A) A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.
B) An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.
C) A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
D) An ordinary loss of $44,000 and a nontaxable distribution of $20,000.
E) None of the above.

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

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Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year.Her allocable share of LLC items are as follows: $20,000 of ordinary income, $2,000 tax-exempt interest income, and a $6,000 long-term capital gain.In addition, the LLC distributed $12,000 of cash to Emma during the year.Assuming the LLC had no liabilities at the beginning or the end of the year, Emma's ending basis in her LLC interest is $76,000.

A) True
B) False

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Misty and John formed the MJ Partnership.Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $20,000; Misty received a distribution of $12,000 cash from the partnership; and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year.Misty's adjusted basis for her partnership interest at year end is:


A) $48,000.
B) $60,000.
C) $78,000.
D) $88,000.
E) $90,000.

F) D) and E)
G) A) and B)

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Harry's basis in his partnership interest was $10,000 at the beginning of the tax year.For the year, his share of the partnership's loss was $8,000, and he also received a distribution of $4,000.Harry can deduct an $8,000 loss, and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -§704b) book


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) F) and L)
T) A) and B)

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Laura is a real estate developer and owns property that is treated as inventory not a capital asset) in her business.She contributes a parcel of this land basis of $15,000) to a partnership, also to be held as inventory.The fair market value of the property is $12,000 at the contribution date.After three years, the partnership sells the land for $10,000.The partnership will recognize a $5,000 ordinary loss on sale of the property.

A) True
B) False

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If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.

A) True
B) False

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


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) M) and R)
T) K) and P)

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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) 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) E) and G)

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


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 I)
T) J) and R)

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Match each of the following statements with the terms below that provide the best definition. -Qualified business income 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 K)
R) G) and N)

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


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 F)
T) M) and R)

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At the beginning of the year, Ryan's capital account balance in the RUS Partnership in which Ryan owned a 40% interest) was $200,000.During the year Ryan contributed cash $40,000) and property basis = $20,000, fair market value = $30,000) .RUS reported ordinary income of $100,000 and tax-exempt income of $6,000.At the end of the year, the partnership distributed $6,000 of cash to Ryan.On the Schedule K-1, the partnership shows that Ryan had a $50,000 share of nonrecourse LLC debt at the end of the year.Using the tax basis method, how much is Ryan's ending capital account balance?


A) $294,000.
B) $296,400.
C) $306,400.
D) $344,000.
E) $346,400.

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

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


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 P)
R) G) and M)

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Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Binita's adjusted basis outside basis) for her partnership interest at year-end is:


A) $36,000.
B) $38,000.
C) $60,000.
D) $70,000.
E) $80,000.

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

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Sharon contributed property to the newly formed QRST Partnership.The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date.The property was also encumbered by a $90,000 nonrecourse debt, which was transferred to the partnership on that date.Sharon is treated as a general partner.She is allocated 30% of QRST's profits, and 20% of QRST's losses.Sharon's basis in the partnership interest after the formation transaction is:


A) $28,000.
B) $37,000.
C) $88,000.
D) $118,000.
E) $127,000.

F) B) and C)
G) C) and E)

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Which one of the following statements is TRUE regarding a partner's personal liability for partnership assets?


A) LLC members can never be liable for entity debts.
B) In a limited partnership, all partners have limited liability for partnership debts.
C) In a limited liability partnership, the partner might be subject to liability for other partners' malpractice.
D) In a general partnership, all partners are liable for entity debts
E) None of the above statements are true.

F) A) and D)
G) A) and E)

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Ryan is a 25% partner in the ROCC Partnership.At the beginning of the tax year, Ryan's basis in the partnership interest was $90,000, including his share of partnership liabilities.During the current year, ROCC reported net ordinary income of $100,000.In addition, ROCC distributed $10,000 to each of the partners $40,000 total) .At the end of the year, Ryan's share of partnership liabilities increased by $10,000.Ryan's basis in the partnership interest at the end of the year is:


A) $90,000.
B) $100,000.
C) $115,000.
D) $125,000.
E) $190,000.

F) A) and E)
G) A) and D)

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Xena and Xavier form the XX LLC.Xena contributes cash of $20,000, land basis = $40,000; fair market value = $25,000) , equipment basis = $0; fair market value = $35,000) , and inventory basis = $30,000; fair market value = $40,000) .Xavier contributed $120,000 of cash.How much is the partnership's basis in the land, equipment, and inventory, and how much is Xena's basis in the partnership interest?


A) $25,000 land, $0 equipment, $30,000 inventory; $55,000 partnership interest.
B) $40,000 land, $0 equipment, $30,000 inventory; $90,000 partnership interest.
C) $25,000 land, $35,000 equipment, $30,000 inventory; $105,000 partnership interest.
D) $40,000 land, $35,000 equipment, $40,000 inventory; $135,000 partnership interest.

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

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