When computing the partnership’s ordinary income a deduction is allowed for

1.
Identify which of the following statements is true.
A) All of the partners in a limited partnership have limited liability.
B) A limited partnership must have at least two general partners.
C) A limited partnership cannot have a corporate general partner.
D) All are false.

2.
On January 1, Helmut pays $2,000 for a 10% capital, profits and loss interest in a partnership, which has recourse liabilities of $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same year, the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000. Helmut and the partnership use a calendar tax year-end. Helmut’s basis at year-end is
A) $1,500.
B) $2,000.
C) $3,500.
D) $3,900.

3.
For a 20% interest in partnership capital, profits and losses, Kasi contributes a machine having a basis of $30,000 and a FMV of $40,000. The partnership also assumes a $24,000 recourse liability secured by the machine. The partnership has $6,000 in recourse liabilities immediately preceding Kasi’s contributions. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Kasi’s basis in the partnership interest is
A) $10,800.
B) $12,000.
C) $13,200.
D) $30,000.

4.
David contributes investment land with a basis of $24,000 and a FMV of $40,000 to a partnership for a 10% interest in partnership capital, profits and losses. The land is subject to a $30,000 recourse liability, which is assumed by the partnership. The partnership has other recourse liabilities of $18,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. David must recognize
A) $3,000 capital gain.
B) $3,000 capital loss.
C) $1,200 capital gain.
D) $1,200 capital loss.

5.
Identify which of the following statements is true.
A) Tax-exempt interest received by a partnership is taxable to the partners if distributed.
B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items.
C) The amount and character of any gains/losses is determined at the partnership level.
D) All are false.

6.
Meg and Abby are equal partners in the AM Partnership which earns $40,000 ordinary income, $6,000 long-term capital gain (LTCG) and $2,000 Sec. 1231 loss during the current year. What is the amount and character of income which must be reported on Abby’s tax return for this year’s partnership operations?
A) $20,000 ordinary income, $3,000 LTCG, $1,000 Sec. 1231 loss
B) $19,000 ordinary income, $3,000 LTCG
C) $23,000 ordinary income, $1,000 Sec. 1231 loss
D) $22,000 ordinary income

7.
At the formation of the BD Partnership, Betty contributes land with a basis of $10,000 and a FMV of $30,000 and Dick contributes cash of $30,000. Betty and Dick share profits and losses equally. When the land is sold two years later for $50,000, Betty must recognize a gain of
A) $10,000.
B) $20,000.
C) $30,000.
D) $40,000.

8.
William and Irene each contribute $20,000 cash to the WI Partnership on January 1 of last year. William and Irene share profits and losses equally. Last year, the partnership reported tax-exempt interest income of $4,000. This year each partner receives $1,000 of the tax-exempt interest income in a cash distribution. There are no partnership liabilities and no other income, loss, contributions or distributions during both years. William’s basis in the partnership interest following these transactions is
A) $19,000.
B) $20,000.
C) $21,000.
D) $22,000.

9.
Miguel has a 50% interest in partnership capital, profits and losses. The basis for his partnership interest is $50,000. The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Miguel receives a distribution of land that has a FMV of $40,000 and an adjusted basis of $30,000. The land is subject to a $15,000 liability which Miguel assumes. His basis in the partnership interest following the land distribution is
A) $12,500.
B) $20,000.
C) $27,500.
D) $35,000.

10.
Stan had a basis in his partnership interest at the beginning of last year of $30,000. There was no change in partnership liabilities during the year. His share of the partnership’s ordinary loss last year was $40,000 and the partnership had no separately stated items. This year Stan has a distributive share of ordinary income of $30,000. The taxable income from the partnership reported on Stan’s personal income tax return this year (ignoring the at-risk and passive activity loss limitations) is
A) $10,000 ordinary loss.
B) $20,000 ordinary income.
C) $30,000 ordinary income.
D) $40,000 ordinary income.

11.
When computing the partnership’s ordinary income, a deduction is allowed for
A) contributions to charitable organizations.
B) net operating losses.
C) net short-term capital losses.
D) guaranteed payments to partners.

12.
A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane’s capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits. Diane’s basis in the partnership interest prior to Gary’s admission is $5,000. Due to the admission of Gary, partner Diane has
A) no recognized gain or loss and a partnership interest basis of $10,000.
B) no recognized gain or loss.
C) recognized gain of $5,000 and a partnership interest basis of zero.
D) recognized gain of $5,000 and a partnership interest basis of $5,000.

13.
Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment?
A) $0
B) $4,000
C) $7,000
D) None of the above.