Buckwold12e_ch15_Review

Buckwold12e_ch15_Review - 1CHAPTER 15 PARTNERSHIPS Review...

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1CHAPTER 15 PARTNERSHIPS Review Questions 1. Identify three “non-taxable entities.” Does “non-taxable” mean that the income earned by these entities is not subject to tax? Explain. 2. What is a standard partnership, and how is it different from a joint venture and from a co-ownership? 3. What types of entities can be partners in a standard partnership? Does each partner in a partnership have to be the same type of entity? Explain. 4. Must each partner in a partnership contribute an amount of capital that is proportionate to its profit-sharing ratio? Explain. 5. To what extent is each partner liable for the obligations of the partnership? Compare this with the obligations of shareholders in a corporation. 6. How can a partner that has a substantial net worth organize its investment in a partnership so that its liability exposure is limited? 7. “The amount of tax paid on partnership profits depends on the nature of the separate partners and not on the nature of the partnership itself.” Explain. 8. “Profits of a partnership are included in the income of the partners only when those profits are distributed to them.” Is this statement true? Explain. 9. A partnership may be preferable to a corporation when the business venture is new and expects to incur losses in its early years. Explain why. 10. When net income from business for tax purposes is being determined, the timing of certain expense deductions is discretionary. For example, a taxpayer may claim all of, some of, or none of the available capital cost allowance. Similarly, the deduction of certain reserves is discretionary. In a partnership structure, is the deduction of discretionary items decided by the partnership as a whole, or can each partner make a separate decision on its proportionate share? What conflict can arise as a result? 11. “Partnership profits or losses allocated to the partners retain their source and characteristics.” What does this mean? How does this compare with the manner in which a corporation’s profits or losses affect its shareholders?
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12. On distribution, for tax purposes, accumulated partnership profits to partners are treated differently from accumulated corporate profits to shareholders. How? 13. What is a partnership interest? What type of property is it considered to be for tax purposes? 14. The value of the shares of a corporation changes when corporate profits or losses are accumulated and when corporate assets change in value. The value of a partnership interest changes in exactly the same manner. Explain how the tax treatment applied to the sale of a partnership interest differs radically from that applied to the sale of corporate shares. 15. Explain the general tax implications, both to the partner and to the partnership, when a partner transfers property to the partnership that has appreciated in value beyond its cost amount. Is there an alternative treatment? Explain. 16.
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Buckwold12e_ch15_Review - 1CHAPTER 15 PARTNERSHIPS Review...

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