FTax IRGTB ch12 p001-014

FTax IRGTB ch12 p001-014 - Deductions for Certain...

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Unformatted text preview: Deductions for Certain Investment Expenses and Losses Test Bank True or False 1. The form of organization usually used for traditional tax shelters is a C corporation. 2. The acceleration of expenses to early periods and the postponement of income to later periods are key ingredients of most tax shelters. The term used to describe this aspect of a tax shelter is conversion. 3. In tax shelter jargon, conversion concerns the differing tax treatments given to losses arising from the tax shelter activity and the gains upon the sale of the activity. 4. The at-risk rules generally limit the amount of deductible losses from an activity to the amount of resources that the investor has committed to the activity. 5. The at-risk and passive loss rules operate so as to affect the character of gain or loss on the sale of an investment activity. 6. A taxpayer ’ s at-risk amount increases only for contributions of cash and property and income earned by the activity that is not withdrawn from the business. 7. The at-risk amount is reduced by distributions and losses. 8. J and K decided they wanted to get in the rental real estate business. This year J and K formed a partnership. The partnership bought a 200 unit complex called Lazy Acres from the Trumpet Group for $1,000,000. The partnership gave Trumpet $200,000 cash and a note for $800,000 which was secured by the apartment complex. For purposes of the at-risk rules, the note to Trumpet is considered qualified nonrecourse financing. 9. J and K decided they wanted to get in the rental real estate business. This year J and K formed a partnership. The partnership bought a 200 unit complex called Lazy Acres from the Trumpet Group for $1,000,000. The partnership gave Trumpet $200,000 cash and a note for $800,000 which was secured by the apartment complex. The partnership borrowed the cash from the First National Bank of Boston and secured the loan with a parcel of land that it owned. For purposes of the at-risk rules, the amount of debt secured by the land is included in the at-risk amount. 12 12-1 10. G is a general partner in a partnership that leases heavy-duty equipment (e.g., bulldozers, backhoes, compactors, excavators). G ’ s at-risk amount increases as the partnership ’ s recourse debt increases. 11. L is a limited partner in a partnership that leases heavy-duty equipment (e.g., bulldozers, backhoes, compactors, excavators). L ’ s at-risk amount increases as the partnership ’ s recourse debt increases. 12. X is a general partner in a general partnership that leases heavy-duty equipment (e.g., bulldozers, backhoes, compactors, excavators). All of the equipment purchases are financed using nonrecourse debt that is secured by the equipment. X ’ s at-risk amount includes his share of recourse and nonrecourse debt....
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This note was uploaded on 02/05/2012 for the course ACCT 112 taught by Professor Smith during the Spring '11 term at Adrian College.

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FTax IRGTB ch12 p001-014 - Deductions for Certain...

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