1. Generally, a partnership does not pay tax on its income but
"passes through" any profits or losses to its partners.
True
False
2. An entity formed under state law by filing articles of
organization where none of the members are personally liable for its debts.
A. Partnership.
B. Sole
Proprietorship.
C.
Limited Liability Company (LLC).
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. 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. If
capital is not a material income-producing factor they joined together in good
faith to conduct a business.
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. 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. The owner withdraws from the partnership.
B. The
partnership liquidates.
C.
The right to share in earnings and profits.
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. An insurance company.
B. A
tax-exempt organization.
C. A
real estate investment trust.
D.
None of the above.
6. A qualified entity is a business entity that meets the
following requirement
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. No
person other than one or both spouses would be considered an owner for federal
tax purposes.
C.
The business entity is not treated as a corporation.
D. All
of the above.
7. A partnership terminates when
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. 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.
You sell or exchange 50% or more of the partnership interest within a 12-month
period.
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. The 15th day of the fourth month following the date of termination.
B. The
15th day of the 3rd month following the date of termination.
C.
The 15th day of the 5th month following the date of termination.
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. The partners must be able to compute their own taxable income without
computing the partnership's income.
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.
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. 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. Own the property as co-owners.
B.
Reserve the right separately to take or dispose of their shares of any property
acquired or retained.
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. 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. Own the property as co-owners, either in fee or under lease or other form of
contract granting exclusive operating rights.
B.
Reserve the right separately to take in kind or dispose of their shares of any
property produced, extracted, or used.
C. Do
not jointly sell services or the property produced or exchanged.
D. All
of the above.
12. A partnership distribution includes
A. A
withdrawal by a partner in anticipation of the current year's earnings.
B. A
distribution of the current year's or prior year's earnings not needed for
working capital.
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.
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
partnership is not considered to engage in a trade or business.
B. A
partnership is not required to file a Form 1065.
C. Both
A and B above.
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.
The joint venture between a husband and wife can include other family members.
B. The filing status of the husband and wife can be married filing separately.
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.
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.
The partner's additional contribution to the partnership, including an increased
share of, or assumption of partnership liabilities.
B. The partner's distributive share of taxable and nontaxable partnership
income.
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.
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. Creates or increases the partnership's basis in any of its assets.
B. Gives rise to a current deduction to the partnership.
C. Is a nondeductible, noncapital expense of the partnership.
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.
More than 50 partners.
B. More than 100 partners.
C. More than 150 partners.
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. Was in effect on June 8, 1997 and at all times thereafter before the
construction.
B. Provides for the contribution of a fixed amount of property.
C. Is the difference between the property's basis and its fair market value
before its contribution.
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. On
Form 1065 as well.
B. On
Schedule E (Form 1040).
C. Directly on Form 1040 or 1040A.
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.
True
False
