Chapter 22

2011 Federal Taxation (with H&R BLOCK At Home(TM) Tax Preparation Software CD-ROM)

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CHAPTER 22—TAXATION OF PARTNERSHIPS AND PARTNERS TRUE/FALSE 1. Owners of investment property can elect that Subchapter K not apply to their ventures if each owner retains a separate and undivided ownership interest in the acquisition, operation, and disposition of the property. ANS: T Each owner must retain a separate and undivided ownership interest in order for the election to be val- id. PTS: 1 REF: p. 22-3 2. It is possible for a business to be taxed as a partnership even though one of its partners is a corporation. ANS: T There are no restrictions placed on who or what qualifies as a partner. The Code and Regulations simply state that the word partner "means a member of a partnership." PTS: 1 REF: pp. 22-3 and § 761(b) 3. General partnerships are owned solely by two or more general partners, and limited partnerships are owned solely by two or more limited partners. ANS: F All partnerships must have at least one general partner. PTS: 1 REF: p. 22-4 4. A limited partner, by definition, may not participate in the management of the limited partnership. ANS: T If a limited partner does participate in management, this may convert a limited partner to general part- ner status. PTS: 1 REF: p. 22-4 5. A contributing partner's holding period for an interest in a partnership begins on the date the partner- ship interest is acquired. ANS: F If a partner contributes either § 1231 or capital assets to a partnership, the holding period for the part- ner's interest in the partnership includes the period of time the partner owned the contributed assets. PTS: 1 REF: p. 22-6 and § 1223(1) 6. B contributes her business property to AB Partnership. This property has a market value of $2,000 and a basis to B of $1,500. The entity theory applies in this situation. Accordingly, the basis of the property to the partnership is $2,000, and B recognizes a $500 gain. ANS: F
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The aggregate theory applies when a partner contributes property to a partnership in exchange for a partnership interest. In this case, B recognizes no gain and the partnership takes a $1,500 carryover basis in the contributed property. PTS: 1 REF: Example 2, pp. 22-5 and 22-6, and §§721 and 722 7. When noncash assets are contributed to a partnership, the entity theory usually applies and, therefore, gain or loss is recognized. ANS: F The aggregate theory applies. Consequently, when noncash assets are exchanged for an interest in a partnership, the transfer is usually considered to be tax-free at both the partnership and partner levels. PTS: 1 REF: pp. 22-5 and 22-6, and §§ 721, 722, and 723 8. The partnership's holding period for assets contributed to the partnership by a partner begins with the date the assets are contributed. ANS: F
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Chapter 22 - CHAPTER 22TAXATION OF PARTNERSHIPS AND...

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