South Western Federal Taxation 2018 Corporations, Partnerships, Estates And Trusts 41st Edition By William – Test Bank

1. A cash distribution from a partnership to a partner is generally taxable to the partner.
a. True
b. False
ANSWER: False
RATIONALE: A cash distribution from a partnership to a partner is a tax-deferred transaction unless the distributed cash exceeds the partner’s basis in the partnership interest. The distribution reduces the partner’s basis in the partnership interest, but not below zero.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-01 – LO: 11-01
CPET.SWFT.LO: 11-02 – LO: 11-02
CPET.SWFT.LO: 11-03 – LO: 11-03
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 5 min.

2. For Federal income tax purposes, a distribution from a partnership to a partner is treated the same as a distribution from a C corporation to its shareholders.
a. True
b. False
ANSWER: False
RATIONALE: A distribution from a partnership to a partner is a tax-deferred transaction which generally results in no current taxable income. A distribution from a C corporation to its shareholders is taxed as a dividend to the extent of the corporation’s earnings and profits (E & P).
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-01 – LO: 11-01
CPET.SWFT.LO: 11-02 – LO: 11-02
CPET.SWFT.LO: 11-03 – LO: 11-03
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

3. In a current (nonliquidating) distribution, loss is never recognized.
a. True
b. False
ANSWER: True
RATIONALE: A current distribution is one that does not liquidate the interests of the partners or members. The Code does not permit loss recognition on a current distribution because, until the partnership is liquidated, there is always the potential that an additional distribution could be made that would make the partner whole. (Similarly, a shareholder in a Subchapter C corporation does not recognize a loss when a dividend distribution is made.)
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-02 – LO: 11-02
STATE STANDARDS: United States – AK – AICPA: FN – Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 2 min.

4. Anna and Brad are equal partners in the AB LLC. If AB distributes $10,000 of cash to Anna and a capital asset valued at $10,000 to Brad, and if both Anna and Brad continue to be members of the LLC, the distribution is classified as a proportionate current distribution.
a. True
b. False
ANSWER: True
RATIONALE: A current distribution is one that does not liquidate the interests of the partners or members. A proportionate distribution is one that does not change the partners’ interests in the hot assets of the partnership. Because AB does not liquidate and Anna and Brad continue to own interests therein, this is a current distribution. Because Anna and Brad each receive a distribution of non-hot assets, their respective shares of the LLC’s hot assets (if any) does not change, so this is a proportionate distribution.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-01 – LO: 11-01
NATIONAL STANDARDS: United States – AICPA:FN – Analytic
STATE STANDARDS: United States – AK – AIReportingCPA:FN – Measurement
KEYWORDS: Bloom’s:Knowledge
OTHER: Time: 2 min.

5. In a liquidating distribution, a partnership must distribute all of its property to all of its partners.
a. True
b. False
ANSWER: False
RATIONALE: A liquidating distribution occurs either when 1) the partnership liquidates and terminates the interests of all the partners, or 2) an ongoing partnership distributes property in liquidation of a single partner’s interest.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-01 – LO: 11-01
CPET.SWFT.LO: 11-03 – LO: 11-03
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 5 min.

6. A distribution can be “proportionate” (as defined for purposes of Subchapter K) even if only one partner receives assets from the partnership.
a. True
b. False
ANSWER: True
RATIONALE: A disproportionate distribution arises when the partner’s share of ordinary income-producing assets increases or decreases as the result of a distribution. There are situations in which a distribution can be made to only one partner without upsetting this balance. For example, the partnership might not own any “hot assets” or the partnership might liquidate the interest of that partner by distributing the partner’s share of hot and non-hot assets (without making corresponding distributions to the other partners). In either of these situations, each partner is still responsible for the “ordinary income potential” inherent in his/her/its share of partnership assets, and so the distribution is considered to be “proportionate.”
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-01 – LO: 11-01
CPET.SWFT.LO: 11-02 – LO: 11-02
CPET.SWFT.LO: 11-03 – LO: 11-03
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 5 min.

7. Generally, a distribution of property does not result in gain to a partner on either a current or liquidating distribution. A situation where a gain may arise, however, is when a partner contributed appreciated property to the partnership and that property is distributed back to the contributing partner within seven years of the contribution.
a. True
b. False
ANSWER: False
RATIONALE: A distribution of precontribution gain property does not result in gain under § 737 if it is merely returned to the partner who contributed the property to the partnership.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-04 – LO: 11-04
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

8. Loss cannot be recognized on a distribution from a partnership unless cash, unrealized receivables, and/or § 1231 assets are the only items distributed.
a. True
b. False
ANSWER: False
RATIONALE: A loss can only be recognized on a distribution in which cash, unrealized receivables and/or inventory are the only items distributed, and the distribution is a liquidating distribution. In addition, the inside basis of the assets distributed must be less than the distributee partner’s outside basis of the partnership interest immediately before the distribution.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-02 – LO: 11-02
CPET.SWFT.LO: 11-03 – LO: 11-03
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 5 min.

9. Generally, no gain is recognized on a proportionate liquidating or current (nonliquidating) distribution of non-cash property even if the fair market value of property distributed exceeds the partner’s basis in the partnership interest.
a. True
b. False
ANSWER: True
RATIONALE: If property (other than cash or cash equivalents) is distributed from a partnership, the partner generally recognizes no gain on the distribution.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-02 – LO: 11-02
CPET.SWFT.LO: 11-03 – LO: 11-03
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 5 min.

10. In a proportionate current (nonliquidating) distribution of cash and a capital asset, the partner recognizes gain to the extent the amount of cash plus the fair market value of property distributed exceeds the partner’s basis in the partnership interest.
a. True
b. False
ANSWER: False
RATIONALE: In a proportionate distribution of cash and property, the partner does not recognize a gain or loss unless the amount of cash distributed exceeds the partner’s outside basis. Any property takes the lesser of a carryover basis (the partnership’s basis in the property) or a substituted basis (the partner’s remaining basis in the partnership interest after cash and ordinary income-producing property distributions are taken into account); the value of the property does not trigger a gain.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CPET.SWFT.LO: 11-02 – LO: 11-02
NATIONAL STANDARDS: United States – BUSPORG: Comprehension – BUSPORG:Comprehension
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 5 min.