Chapter 20 T/F Flashcards Preview

HS321 CFP Income Taxation > Chapter 20 T/F > Flashcards

Flashcards in Chapter 20 T/F Deck (20)
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1
Q

Business organizations that are unincorporated under state law may generally choose whether to be taxed as partnerships or corporations.

A

True

2
Q

A limited liability company has the corporate characteristic of limited liability but may be taxed as a partnership.

A

True

3
Q

Profits earned by a partnership are taxed twice: once to the partnership itself and also to its owners.

A

False. The partnership itself is not a taxpayer. Therefore profits are taxed only once to each partner.

4
Q

Partners in a partnership may deduct their shares of the partnership’s net loss on their individual tax returns.

A

True

5
Q

he aggregate theory and the entity theory are two theories of partnership taxation used in tax law relating to partnerships and their partners.

A

True

6
Q

When a partner contributes appreciated assets to a partnership, he or she recognizes gain on the transfer.

A

False. No gain is recognized on the transfer of appreciated assets to a partnership. The contributor-partner will generally take as his or her original basis for his or her partnership interest the basis he or she had in the property contributed at the time of contribution.

7
Q

A partnership files its own partnership return and pays partnership income taxes

A

False. A partnership does file a partnership return, but only for informational purposes. A partnership does not pay income taxes.

8
Q

A partner’s distributive share of items of partnership income or loss is included in his or her personal tax return.

A

True

9
Q

A partner’s distributive share is generally determined in accordance with the partnership agreement.

A

True

10
Q

If a partner lends money to his or her partnership as an outsider, the basis of his or her partnership shares is not affected.

A

False. When a partner lends money to his or her partnership as an outsider, his or her partnership basis is increased by his or her share of the partnership’s liability to him or her.

11
Q

The basis of a contributing partner’s partnership interest is generally the amount of cash contributed plus the adjusted basis of the property he or she contributes to the partnership.

A

True

12
Q

Taxable income may be realized by a contributing partner where services are contributed for an interest in the partnership capital.

A

True

13
Q

A retiring partner’s share of the gain attributable to inventory is treated as ordinary income when the partnership liquidates the retiring partner’s interest.

A

True

14
Q

Upon the liquidation of an interest in a service partnership, payments for goodwill are treated as capital gain regardless of whether they are mentioned as such in the partnership agreement.

A

False. If the partnership agreement specifies that payments will be made for goodwill, the partners receiving liquidating distributions will report payments for goodwill as capital gain, but the payments are not deductible by the partnership. If the agreement is silent as to goodwill, the payments are taxable to the partners as ordinary income and are deductible by the partnership.

15
Q

A manufacturing partnership can deduct payments for unrealized receivables when liquidating a retiring partner’s interest.

A

False. Payments to a retiring partner that are attributable to unrealized receivables are not deductible by a manufacturing partnership. Although the retiring partner will treat such amounts as ordinary income, the partnership treats such amounts as made-for-partnership property. No deduction is allowed.

16
Q

A limited partner in a limited partnership has liability only to the extent of his or her financial contribution to the partnership.

A

True

17
Q

Generally, limited partners are limited in authority.

A

True

18
Q

A family partnership is recognized as a partnership for tax purposes if the partnership arrangement has economic reality.

A

True

19
Q

In a family partnership that is capital intensive, a donee of a partnership interest will be taxed on his or her share of partnership income even if the donor retains control over the exercise of the donee’s partnership interest.

A

False. The donee must have dominion and control over the partnership interest in order to be taxed on his or her share of partnership income.

20
Q

In a family partnership where capital is not a material income-producing factor, a donee of a partnership interest must contribute services in order to be treated as a partner for tax purposes.

A

True