33. For computing E&P, a corporation's organizational expenditures are never deductible. 34. For purposes of computing E&P, the cost of depreciable property is recovered using the alternative depreciation system (ADS) over specified periods, and Section 179 expensing is not allowed. 35. Because different methods are used to depreciate property for determining corporate taxable income than for determining E&P, the adjusted basis in depreciable property will also differ. 36. When computing gain for E&P, adjusted basis using tax depreciation deductions may be used. 37. Items that increase E&P include gains from like-kind exchanges and the involuntary conversion of property. 38. When a C corporation distributes appreciated property, its E&P are decreased by the recognition on such distribution. 39. When a corporation makes a nontaxable distribution of its own stock, the corporation must reduce its E&P. 40. Interest from state and local government bonds is exempt from federal income tax; however, the interest is included in the calculation of E&P. 41. In a general partnership all the partners are classified as "general partners," each of whom has unlimited liability for the debts of the partnership. 42. Each partner's allocable share of partnership items is deemed to be taxed to the partner on the last day of the entity's tax year, regardless of the amount that has been distributed to the partner during the year. 43. The election whether each partner will deduct or take a tax credit for foreign taxes paid during the year is made at the partnership level. 44. A partner is not taxed on a distribution from the partnership except when the amount of cash distributed exceeds the partner's distributive share of partnership items. 45. The partner's tax basis keeps track of what each partner is entitled to receive upon dissolution of the partnership. 46. When contributed property is transferred subject to a mortgage or other indebtedness or when a partner's indebtedness is assumed by the partnership, the contributing partner's basis in the partnership interest is reduced by the amount of the indebtedness assumed by the other partners. 47. The principal partners rule requires that the partnership adopt the tax used by the majority of its principal partners.
5 Testbank © 2016 CCH Incorporated and its affiliates. All rights reserved. Chapter 16 48. When the partnership and its partners do not use the same tax year, the tax laws require that each partner's allocable share of partnership items be reported in that partner's tax year that includes the year-end of the partnership. 49. A partnership is allowed to select a tax year different its required tax year if it can establish to the IRS's satisfaction that a business purpose exists for using the requested tax year.
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