ACT 310 Quiz 60 questions

.               Which, if either, of the following statements is or are true?

                I.             The co-ownership of business property, where only minimal services are provided by the owners for their tenants, generally constitutes a partnership for federal income tax purposes. 

                II.            As a general rule, when a person obtains an interest in partnership capital through rendition of services, compensation (ordinary) income is recognized to the extent of the fair market value of the interest received.

a.             I only.

b.             II only.

c.             Both I and II.

d.             Neither I nor II.

2.             Which, if either, of the following statements is or are true?

       I.      On the formation of a partnership, the contribution by one partner of encumbered property to a partnership when other partners contribute only cash will not result in taxation unless the total amount of the debt relief exceeds the contributor’s basis in the contributed property.

       II.     The contribution of accounts receivable to a partnership results in immediate taxation to the contributor to the extent of the fair market value of the receivables on date of contribution.

      a.       I only.

      b.       II only.

      c.       Both I and II.

      d.       Neither I nor II.

3.             Under the check-the-box regulations a corporation incorporated under the law of any state can

a.             elect to be taxed as a partnership

b.             elect to be taxed as a limited liability company    

c.             elect to be taxed as a sole proprietor if there is only one shareholder

d.             not  be taxed as anything other than a corporation

4.             On January 2, 2013, Henry, Cabot, and Lodge formed a three-person equal partnership with Henry and Cabot each contributing $100,000 and Lodge contributing securities with a basis to him of $60,000 and a fair market value of $100,000. On February 28, 2013, the partnership sold the securities for $130,000. The amount of the gain to be allocated to Lodge is:

a.             $70,000

b.             $50,000

c.             $30,000

d.             $23,333

e.             $10,000

5.             Malcolm, a dealer in securities, is a 60 percent owner of the Real Partnership which on July 1, 2012, sold to him Acme Securities which it had held as an investment for three years. The basis of the securities to the Real Partnership was $40,000, and the sales price to Malcolm was $100,000. On his 2012 federal income tax return, Malcolm should report income in the amount and character of:

a.             $36,000 long-term capital gain

b.             $36,000 short-term capital gain

c.             $36,000 ordinary income

d.             $18,000 long-term capital gain

e.             $18,100 ordinary income

6.             Bobbie and Fran  are partners in the Quick Freeze partnership, owning respectively 60 percent and 40 percent of the partnership's capital and profits. At the beginning of the 2012, their bases in their partnership interests were $18,000 and $12,000, respectively. During the year, the partnership had the following items of income: partnership ordinary income, $30,000; long-term capital gains, $10,000; and tax-exempt income from municipal bond interest, $5,000. The partnership distributed $8,000 to Bobbie and $12,000 to Fran. Their respective bases in their partnership interests at the end of 2012 were:

a.             Bobbie: $45,000; Fran: $30,000

b.             Bobbie: $42,000; Fran: $28,000

c.             Bobbie: $37,000; Fran: $18,000

d.             Bobbie: $34,000; Fran: $16,000

e.             Bobbie: $33,000; Fran: $22,000

7.             Bob  contributed a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 subject to a mortgage of $120,000 in exchange for a 30 percent interest in the Alpha Partnership. Alpha will assume the mortgage on the building. What is Alpha's basis in the building?

a.             $0

b.             $30,000

c.             $50,000

d.             $84,000

8.             Which, if either, of the following statements is or are true?

I.                    A partnership Schedule K-1 to Form 1065 must separately state long-term capital gains and losses but not short-term capital gains and losses.

II.                  As a general rule, a partner’s initial basis in his or her partnership interest equals the total of the fair market value of his/her  property plus money, if any, contributed by the partner to the partnership.

a.             I only.

b.             II only.

c.             Both I and II.

d.             Neither I nor II. 

9.   Which, if either, of the following statements is or are false?

I.                    Tax exempt income received by a partnership, for example, municipal bond interest, does not increase a partner’s basis in his/her partnership interest because the income is not taxable.

II.                  A partner who receives a current property distribution (other than cash), made pro rata to all the partners, will not have to report a gain with respect to the distribution.

a.             I only.

b.             II only.

c.             Both I and II.

d.             Neither I nor II.

10.          Rex contributed land to the partnership of  Rex, Tex, and Lex Partnership in exchange for a one-third interest in the Partnership. Rex’s adjusted basis in the land was $50,000 and its fair market value was $75,000. Rex’s Partnership capital account was credited with $75,000. Tex and Lex had each contributed $75,000 cash. Thus, each partner’s capital account was $75,000. What is Rex’s adjusted basis (outside basis) in his partnership interest?

a.             $75,000

b.             $50,000                                                           

c.             $37,500

d.             cannot be determined from the facts stated