x-1065 - Partnerships

Here we will cover rules for ordinary domestic corporations. Examples of businesses taxed as corporations are businesses formed under a federal or state law that refers to it as a corporation, body corporate, or body politic, a business formed under a state law that refers to it as a joint-stock company or joint-stock association, an insurance company, certain banks and businesses owned by state or local governments.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. Bytes, Ltd is a partnership formed by Warren Corporation, JCL Corporation, and Mike (an individual), to build and repair personal computers. The partners' profits interest in Bytes and their respective taxable year's are stated below. Assuming there is no business purpose for any particular year and no Section 444 election has been made, determine the partnership's required taxable year.

A. Since no business purpose to establish a particular year exists, the partnership must adopt the calendar taxable year.
B. The partnership may adopt a taxable year ending either May 31 or August 31.
C. Under the required tax year rules, the partnership must adopt a taxable year ending August 31.
D. Under the required tax year rules, the partnership must adopt a calendar year.

2. Comfy Chairs Manufacturing, Ltd. Operates as a partnership and files Form 1065. Comfy manufactures inflatable lounge chairs. During tax year ended December 31, 2008, Comfy generated income and expenses as stated below. What is the correct amount of ordinary income (loss) from trade or business activities Comfy should report on Schedule K for 2008?

A. $65,000.
B. $69,500.
C. $50,000.
D. $30,000.

3. Shizaam Bakery operates as a calendar year partnership. Shizaam's two partners, Kalla and Henry share profits and losses 60% and 40%, repectively. For tax year ended December 31, 2008, Shizaam had the following income and expense:

Compute the partnership's ordinary income and flow through amounts to partners.

A. Kalla - ordinary income $85,500 and short-term capital loss $3,000; Henry - ordinary income $57,000 and short-term capital loss $2,000.
B. Kalla - ordinary income $82,500; Henry - ordinary income $55,000.
C. Kalla - ordinary income $81,000, interest income $1,500 and short-term capital loss $3,000; Henry - ordinary income $54,000, interest income $1,000 and short-term capital loss $2,000.
D. Kally - ordinary income $84,000, interest income $1,500 and short-term capital loss $3,000; Henry - ordinary income $56,000, interest income $1,000 and short-term capital loss $2,000.

4. Lori's outside basis in the Briar Patch Partnership at January 1, 2008, was $11,000. She is a 50% partner and shares profits and losses in the same ratio. For 2008, the partnership's ordinary business income was $40,000, tax-exempt interest income $200. Lori received a cash distribution from the partnership of $700 in 2008. If the partnership were to liquidate on December 31, 2008, what would be Lori's basis for determining gain or loss?

A. $24,900.
B. $30,750.
C. $30,400.
D. $30,300.

5. The due date, without regard to extensions, of a domestic partnership filing U.S. Return of Partnership income Form 1065 is the 15th day of which month following the end of the tax year?

A. Third.
B. Fourth.
C. Sixth.
D. Ninth.

6. On January 1, 2008, Ben and Jerry each own 50% of the B&J Fudge partnership. B&J Fudge employs the cash method of accounting and receives $1,000 in interest income each month from an unrelated party loan receivable. On July 1, 2009, Jerry purchased 50% of Ben's partnership interest. There were no other changes in partnership interest for the remainder of the 2008 year. How much does Ben report as his ratable share of the interest income for 2008?

A. $7,500.
B. $6,000.
C. $4,500.
D. $3,000.

7. The L&J Auto Parts Store operated as an accrual based partnership and filed a form 1065 for 2008. In addition to receipts from parts sales of $250,000, they had the following other items of income and expenses for 2008.

What is the correct Ordinary income or Loss that L&J should report on line 22 of their 2008 form 1065?

A. $85,000.
B. $115,000.
C. $100,000.
D. $150,000.

8. Which of the following partnership items must be separately stated on the partner's K-1:

A. Cost of goods sold.
B. Employee benefit programs.
C. Charitable contributions.
D. Taxes and licenses.

9. A partner is considered not at risk for which of the following amounts:

A. The money and adjusted basis of any property the partner contributed to the activity.
B. The partner's share of net income retained by the partnership.
C. An allocation of a loss, deduction, or expense attributable to a partnership nonrecourse liability.
D. Certain amounts borrowed by the partnership for use in the activity if the partner is personally liable for repayment.

10. Simon and Maggie Partnership, a calendar year partnership, with two partners, filed its 2007 Form 1065 tax return on December 31, 2008. An extension of time to file was not filed. What is the amount of their Failure to File penalty?

A. $50.
B. $100.
C. $500.
D. $1,620.

11. Alex and Arthur are equal partners in the A&R Partnership. Alex receives a guaranteed payment of $5,000. The partnership had distributive net income (after deducting the guaranteed payment of $5,000) of $80,000. What amounts are subject to self employment tax?

A. Alex: $37,500    Arthur: $37,500.
B. Alex: $42,500    Arthur: $42,500.
C. Alex: $40,000    Arthur: $40,000.
D. Alex: $45,000    Arthur: $40,000.

12. ABC Corporation's tax year ends on October 31, 2008. When is ABC Corporation's income tax return required to be filed?

A. January 31, 2009.
B. January 15, 2009.
C. March 15, 2009.
D. March 31, 2009.

13. Abbot Corporation's tax year ends on June 30, 2008. If Abbot Corporation (a domestic Corporation) timely files a Form 7004 Extension of Time to File, what is the extended due date of Abbot Corporation's income tax return for tax year ended June 30, 2008?

A. March 15, 2009.
B. March 30, 2009.
C. April 15, 2009.
D. May 15, 2009.

14. A corporation can accumulate its earnings for a possible expansion or other bona fide business reasons. However, if a corporation allows earnings to accumulate beyond the reasonable needs of the business, it may be subject to an accumulated earnings tax of

A. 20%.
B. 25%.
C. 15%.
D. None of the above.

15. You must treat certain transactions that increase a shareholder's proportionate interest in the earnings and profits or assets of a corporation as if they were distributions of a stock or stock rights.

True False

16. If a corporation cancels a shareholder's debt without repayment by the shareholder, the amount canceled is

A. Not taxable by the shareholder.
B. Treated as a distribution to the shareholder.
C. Forgiven and not treated as a distribution.
D. Treated as a gift.

17. The amount of a distribution is generally the amount of any money paid to the shareholder plus the fair market value (FMV) of any property transferred to the shareholder. However, this amount is reduced (but not below zero) by

A. Any liability of the corporation the shareholder assumes in connection with the distribution.
B. Any liability to which the property is subject immediately before the distribution.
C. Any liability to which the property is subject immediately after the distribution.
D. All of the above.

18. Bob Moon Forms Moon Enterprises LLC (Limited Liability Company) during the year. What form must Moon Enterprises LLC file in order to elect to be taxed as a C corporation?

A. Form 1065 (U.S. Partnership Tax Return).
B. Form 8832 (Entity Classification Election).
C. Form 1120 (U.S. Corporation Income Tax Return).
D. Form 7004 (Application for Extension of time to file for Corporations).

19. ABC Corporation is dissolved on July 9, 2008. What is the due date, without extensions, for filing of the final corporate income tax return?

A. March 15, 2009.
B. December 31, 2008.
C. October 15, 2008.
D. October 9, 2008.

20. The corporation's basis of property contributed to capital by a shareholder is

A. Zero.
B. The same as the basis the shareholder had in the property.
C. Not taxable to the corporation.
D. None of the above.