Chapter 10 Tax Corp - Important 1

A partnership is an association by two or more taxpayers (which may be any type of entity) to carry on a trade or business. True/False

In a limited liability company, all members may participate in management (the operating agreement cannot limit participation) and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis. True/False

In a limited liability company, all members are protected from all debts of the partnership unless they personally guaranteed the debt. True/False

In a limited liability partnership all members may participate in management and have personal liability for entity debts, except for malpractice committed by the other partners. True/False

A limited partnership (LP) offers all partners protection from claims by the LP's creditors. True/False

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election. True/False

The taxable income of a partnership flows through to the partners, who report the income on their tax returns. True/False

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income. True/False

An example of the aggregate concept of partnership taxation is that the partnership makes elections related to depreciation, tax credit calculations (except the foreign tax credit), and whether or not to claim § 179 deduction. True/False

The partnership agreement might provide, for example, that all interest income is allocated to Partner A. Allocating income in this manner is an example of a separately stated item. True/False

A partner will have the same profit-sharing, and capital-sharing ownership percentages. True/False

The "inside basis" is defined as a partner's basis in the partnership interest. True/False

The partnership reports each partner's share of income to the partner on a Form 1099-Misc. True/False

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership. True/False

Ken and Lars formed the equal KL Partnership during the current year, with Ken contributing $100,000 in cash and Lars contributing land (basis of $60,000, FMV of $40,000) and equipment (basis of $0, and FMV of $60,000). Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000. True/False

When Kevin and Marshall formed the equal KM LLC, the FMV of their interests were each $100,000. Kevin contributed $60,000 cash, equipment with a basis of $0 and a FMV of $10,000, and a small parcel of land in which he had a basis of $50,000 and which was valued at $30,000. Marshall contributed an account receivable that was valued at $100,000 and which his basis was $0. Kevin has a basis in his partnership of $110,000 and Marshall's basis is $0. True/False

Morgan and Kristen formed an equal partnership on August 1 of the current year. Morgan contributed $60,000 cash and land with a basis of $18,000 and FMV of $40,000. Kristen contributed equipment with a basis of $42,000 and a value of $100,000. Kristen and Morgan each have a basis of $100,000 in their partnership interest. True/False

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives cash distribution from the partnership soon after the property contribution is made. True/False

George received a full-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP, LLC (not a publicly traded partnership interest). The future profits of the partnership are subject to normal operating risks. George will report ordinary income equal to the FMV of the profits interest, but the capital interest will not be currently taxed to him. True/False

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributes a parcel of this land (basis of $15,000) to a partnership, also to be held as inventory. The FMV of the property is $12,000 at the contribution date. After 3 years, the partnership sells the land for $10,000. The partnership will recognize a $5,000 ordinary loss on sale of the property. True/False

If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment. True/False

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2016. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs (1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months. True/False

Syndication costs arise when partnership interests are being marketed to investors. These costs cannot be amortized or deducted. True/False

The BMR, LLC conducted activities that were eligible for a $20,000 credit for increasing research activities. In addition, the LLC paid foreign taxes of $1,200. On the partners' schedules K-1, BMR will allocate the $20,000 credit, and it will provide the necessary information so the partners can calculate the foreign tax credit if they so choose. True/False

Seven years ago, Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years. This year, when his adjusted basis in the property was $250,000, Paul transferred the property to the newly formed PLA LLC in exchange for a one-third interest in the LLC. PLA incurred $10,000 of transfer taxes and fees related to the property. PLA must treat the $260,000 basis in the property, fees, and expenses, as new MACRS property depreciable over 27.5 years. True/False