CHAPTER 21 PARTNERSHIPS

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

.

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

3. A limited partnership
offers all partners protection from claims by the LP’s creditors.
a. True
b. False

4. 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.
a. True
b. False

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

6. An example of the
“aggregate concept” underlying partnership taxation is the fact that the
partners (rather than the
partnership) pay tax on
partnership income.
a. True
b. False

7. Each partner’s profit­sharing,
loss­sharing, and capital­sharing ownership percentages are always the same.
a. True
b. False

8. The “inside basis” is
defined as a partner’s basis in the partnership interest.
a. True
b. False

9. The partnership
reports each partner’s share of income to the partner in a single amount on
Form 1099.
a. True
b. False

.

10.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.
a. True
b. False

11.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, fair market
value of $40,000) and equipment (basis of $0, fair market value of $60,000).
Lars recognizes a $40,000 gain on the contribution and his basis in his
partnership interest is $100,000.
a. True
b. False

12.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 a fair market value 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
interests.
a. True
b. False

13.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 a cash distribution from the partnership soon
after the property contribution is made.
a. True
b. False

14.George received a
fully-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 fair market value of the profits interest, but the capital interest will
not be currently taxed to him.
a. True
b. False

15.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 fair market value
of the property is $12,000 at the contribution date. After three years, the
partnership sells the land for $10,000. The partnership will recognize a $5,000
ordinary loss on sale of the property.
a. True
b. False

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