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1. Generally, a partnership does not pay tax on its income but "passes through" any profits or losses to its partners.
2. An entity formed under state law by filing articles of organization where none of the members are personally liable for its debts.
- [ ] a. A. Partnership.
- [ ] b. B. Sole Proprietorship.
- [ ] c. C. Limited Liability Company (LLC).
- [ ] d. D. None of the above.
3. Members of a family can be partners. However, family members (or any other person) will be recognized as partners only if
- [ ] a. A. If capital is a material income-producing factor they acquired their capital interest in a bona fide transaction, (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest.
- [ ] b. B. If capital is not a material income-producing factor they joined together in good faith to conduct a business.
- [ ] c. C. They agreed that contributions of each entitle them to share in the profits, and some capital or service has been (or is) provided by each partner.
- [ ] d. D. Any of the above.
4. A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest when
- [ ] a. A. The owner withdraws from the partnership.
- [ ] b. B. The partnership liquidates.
- [ ] c. C. The right to share in earnings and profits.
- [ ] d. D. Either A or B above.
5. An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and is
- [ ] a. A. An insurance company.
- [ ] b. B. A tax-exempt organization.
- [ ] c. C. A real estate investment trust.
- [ ] d. D. None of the above.
6. A qualified entity is a business entity that meets the following requirement
- [ ] a. A. The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or a possession of the United States.
- [ ] b. B. No person other than one or both spouses would be considered an owner for federal tax purposes.
- [ ] c. C. The business entity is not treated as a corporation.
- [ ] d. D. All of the above.
7. A partnership terminates when
- [ ] a. A. All its operations are discontinued and not part of any business, financial operation, or venture is continued by any of its partners in a partnership.
- [ ] b. B. At least 50% of the total interest in the partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner.
- [ ] c. C. You sell or exchange 50% or more of the partnership interest within a 12-month period.
- [ ] d. D. Either A or B above takes place.
8. If a partnership is terminated before the end of the tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. The return is due
- [ ] a. A. The 15th day of the fourth month following the date of termination.
- [ ] b. B. The 15th day of the 3rd month following the date of termination.
- [ ] c. C. The 15th day of the 5th month following the date of termination.
- [ ] d. D. None of the above.
9. Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. All of the partners must agree to make the choice, and
- [ ] a. A. The partners must be able to compute their own taxable income without computing the partnership's income.
- [ ] b. B. The partners are not exempt form the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest.
- [ ] c. C. The partners are not exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year.
- [ ] d. D. All of the above.
10. An investment partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property
- [ ] a. A. Own the property as co-owners.
- [ ] b. B. Reserve the right separately to take or dispose of their shares of any property acquired or retained.
- [ ] c. C. Do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property.
- [ ] d. D. All of the above.
11. An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property
- [ ] a. A. Own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights.
- [ ] b. B. Reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used.
- [ ] c. C. Do not jointly sell services or the property produced or exchanged.
- [ ] d. D. All of the above.
12. A partnership distribution includes
- [ ] a. A. A withdrawal by a partner in anticipation of the current year's earnings.
- [ ] b. B. A distribution of the current year's or prior year's earnings not needed for working capital.
- [ ] c. C. A complete or partial liquidation of a partner's interest or a distribution to all partners in a complete liquidation of the partnership.
- [ ] d. D. Any of the above.
13. For any tax year in which a partnership neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes,
- [ ] a. A. A partnership is not considered to engage in a trade or business.
- [ ] b. B. A partnership is not required to file a Form 1065.
- [ ] c. C. Both A and B above.
- [ ] d. D. the partnership is considered to engage in a trade or business so is required to file a Form 1065.
14. If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. However, the husband and wife can elect not to treat the joint venture as a partnership if they meet certain requirements. The following is a true statement regarding a husband and wife venture.
- [ ] a. A. The joint venture between a husband and wife can include other family members.
- [ ] b. B. The filing status of the husband and wife can be married filing separately.
- [ ] c. C. As long as both spouses elect not to treat the joint venture as a partnership, only one needs to materially participate in the business.
- [ ] d. D. Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax to give each spouse credit for social security earnings on which retirement benefits are based.
15. The basis of an interest in a partnership is increased or decreased by certain items. A partner's basis is increased by
- [ ] a. A. The partner's additional contribution to the partnership, including an increased share of, or assumption of partnership liabilities.
- [ ] b. B. The partner's distributive share of taxable and nontaxable partnership income.
- [ ] c. C. The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners.
- [ ] d. D. All of the above.
16. A partner's basis in a partnership interest includes the partner's share of a partnership liability only if, and to the extent that, the liability
- [ ] a. A. Creates or increases the partnership's basis in any of its assets.
- [ ] b. B. Gives rise to a current deduction to the partnership.
- [ ] c. C. Is a nondeductible, noncapital expense of the partnership.
- [ ] d. D. All of the above.
17. Certain partnerships are required to file Form 1065, Schedules K-1, and related forms and schedules electronically if the partnership has
- [ ] a. A. More than 50 partners.
- [ ] b. B. More than 100 partners.
- [ ] c. C. More than 150 partners.
- [ ] d. D. More than 300 partners.
18. If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. A 5-year period applies to property contributed before June 9, 1997, or under a written binding contract that
- [ ] a. A. Was in effect on June 8, 1997 and at all times thereafter before the construction.
- [ ] b. B. Provides for the contribution of a fixed amount of property.
- [ ] c. C. Is the difference between the property's basis and its fair market value before its contribution.
- [ ] d. D. Both A and B above.
19. Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. The partnership generally deducts guaranteed payments on line 10 of Form 1065 as business expense. The individual partner reports as ordinary income his guaranteed payments
- [ ] a. A. On Form 1065 as well.
- [ ] b. B. On Schedule E (Form 1040).
- [ ] c. C. Directly on Form 1040 or 1040A.
- [ ] d. D. On Schedule C (Form 1040).
20. A partnership that uses an accrual method of accounting cannot deduct any business expense owed to cash basis partner until the amount is paid.
21. A domestic LLC with two members that does not file Form 8832 is not classified as a partnership for federal income tax purposes.
22. A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if
- [ ] a. A. The distribution would not have been made but for the contribution.
- [ ] b. B. The partner's right to the distribution does not depend on the success of partnership operations.
- [ ] c. C. The contribution and distribution occurred more than 2 years apart.
- [ ] d. D. Both of the above.
23. A limited partner is one who is not really a partner of a partnership but has an obligation to contribute capital to the partnership which gives him or her can economic risk of loss in the partnership for tax purposes.
24. An unincorporated organization with two or more members is generally classified as a ______________ for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits.
- [ ] a. A. Sole proprietorship.
- [ ] b. B. Partnership.
- [ ] c. C. Corporation.
- [ ] d. D. Any of the above.
25. Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain.
26. Every domestic partnership must file Form 1065 even if it does not receive income or incurs any expenditures treated as deductions or credits for federal income tax purposes.
27. Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is
- [ ] a. A. The basis of the property to the partner that is more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction.
- [ ] b. B. Its adjusted basis to the partnership immediately before the distribution.
- [ ] c. C. Its adjusted basis to the partnership immediately after the distribution.
- [ ] d. D. Either A or B above.
28. A partner's basis in a partnership interest includes the partner's share of a partnership liability only if, and to the extent that, the liability
- [ ] a. A. The transaction is not a sale.
- [ ] b. B. Gives rise to a current deduction to the partnership.
- [ ] c. C. Is a nondeductible, noncapital expense of the partnership.
- [ ] d. D. All of the above.
29. A loss incurred from the abandonment or worthlessness of a partnership interest is an ordinary loss if
- [ ] a. A. The transaction is not a sale.
- [ ] b. B. The transaction is not a an exchange.
- [ ] c. C. The partner has not received an actual or deemed distribution from the partnership.
- [ ] d. D. All of the above.
30. The partnership agreement includes the original agreement and any modifications. The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. The agreement or modifications
- [ ] a. A. Must be written.
- [ ] b. B. Cannot be oral.
- [ ] c. C. Can be oral or written.
- [ ] d. D. Must be drawn by an attorney.