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FTax IRGTB ch22 p001-014

FTax IRGTB ch22 p001-014 - 22 Taxation of Partnerships and...

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Taxation of Partnerships and Partners Test Bank True or 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. 2. It is possible for a business to be taxed as a partnership even though one of its partners is a corporation. 3. General partnerships are owned solely by two or more general partners, and limited partnerships are owned solely by two or more limited partners. 4. A limited partner, by definition, may not participate in the management of the limited partnership. 5. A contributing partner s holding period for an interest in a partnership begins on the date the partnership interest is acquired. 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. 7. When noncash assets are contributed to a partnership, the entity theory usually applies and, therefore, gain or loss is recognized. 8. The partnership s holding period for assets contributed to the partnership by a partner begins with the date the assets are contributed. 9. A partner s share of liabilities is generally based on her or his economic risk of loss in the case of recourse debt and loss-sharing ratio in the case of nonrecourse debt. 10. When a partner s share of debt is decreased, the reduction is treated as a cash distribution from the partnership to the partner. 22 22-1
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11. Partners may agree to specially allocate any existing revenue, expense, or other partnership item in any way they wish when (a) they have owned their interest in the partnership for the entire year, and (b) the allocation has a substantial economic effect. (Assume all partners contributed cash for their capital interests.) 12. Special allocations of depreciation, depletion, gain, and loss accrued at the date property is transferred to a partnership is optional. 13. An individual who contributes services in exchange for an unrestricted capital interest in a partnership has includible ordinary income equal to the fair market value of the capital interest. 14. Organization costs of a partnership can be deducted when incurred or paid, or they can be amortized on a straight-line basis over a period not to exceed 60 months, provided the partnership files the proper election. 15. Syndication fees paid by a partnership may be amortized on a straight-line basis over a period of 60 months or longer. 16. Form 1065 and Schedule K-1 are prepared according to the aggregate concept; however, special elections often require entity concept treatment.
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