1. Sharon Poss asks you whether her business is a partnership for federal income tax purposes.

Which one
of the following questions will not help you answer her question?
a. Has her business incorporated?

b. Is her business classified as a partnership under applicable state law?

c. Does she carry on the business, and divide profits, with anyone else?

d. Has an election been made using IRS Form 8832 to classify the organization as other than a partnership?

2. Sherry Theus asks you whether she will be taxed on her acquisition of an interest in the JQR
Partnership. Which one of the following questions will not help you answer her question?
a. Did she perform any services for the partnership in return for her partnership interest?

b. What percentage of the value of the partnership's assets consists of readily marketable stocks or securities
or interests in regulated investment companies or real estate investment trusts?
c. Did she contribute any property subject to a liability (such as a mortgage loan)?

d. Did she contribute any property whose adjusted basis exceeded its fair market value?

3. Which one of the following expenses may a partnership elect to amortize over a period of at least 60
months?
a. Amounts paid a lawyer to amend a partnership agreement two years after the partnership began business.

b. Fees paid an accountant to establish a partnership's books and records.

c. Amounts paid to acquire equipment needed to start the partnership's business.

d. Amounts paid to advertise the availability of partnership interests for sale.

4. Felipe and Gloria Melo were equal partners in a partnership. They each gave their daughter a 10 percent
capital interest in the partnership and revised their partnership agreement to give their daughter 25
percent of the partnerships income each year (an allocation that has substantial economic effect).
During 20X1, the partnerships income was $200,000. If Felipe and Gloria provided services worth a
total of $50,000 to the partnership but received only $10,000 in compensation, what is the maximum
amount of partnership income that can be allocated to their daughter?
a. $0

b. $32,000

c. $40,000

d. $50,000

5. Elizabeth Ross purchased half of her grandfather's 50 percent interest in a partnership for $30,000. The
partnership manufactures electronic equipment. In 20X1, the partnership's income was $100,000.
Elizabeth's grandfather performed services worth $20,000 but received nothing for those services from
the partnership. His distributive share of partnership income was $15,000, and Elizabeth's was $35,000.
What amount of partnership income will have to be included in Elizabeth's gross income?
a. $0

b. $20,000

c. $25,000

d. $35,000

6. Which one of the following statements regarding a partnership's tax year is not correct?
a. If two partners in a partnership each have a fiscal year ending October 31 as their tax year and they own
profits and capital interests totaling 51 percent, their partnership's required tax year is a tax year ending
October 31.
b. L&M Partnership has two partners who use a fiscal year ending June 30 as their tax year. One of the
partners owns 20 percent profits and capital interests in the partnership, and the other owns 25 percent
profits and capital interests in the partnership. Its remaining partners, all of whom own less than five percent
profits and capital interests in the partnership, all use the calendar year as their tax year. L&M Partnership is
 required to use a fiscal year ending June 30 as its tax year.
c. A partnership may use a tax year other than its required tax year if it has a business purpose for that
requested year.
d. A partnership with no majority interest tax year is required to use as its tax year the tax year of its partners
that produces the least aggregate deferral of income.
7. ZYJ Partnership has four partners: J&Y Media, Inc., which owns 45 percent capital and profits interests
in ZYJ Partnership, ABC Advertisers, Inc., which owns 30 percent capital and profits interests in ZYJ
Partnership, Beta Communications, Inc., which owns 20 percent capital and profits interests in ZYJ
Partnership, and Teresa Bates, who owns 5 percent capital and profits interests in ZYJ Partnership.
J&Y Media's tax year is a fiscal year ending September 30, ABC Advertisers tax year is a fiscal year
ending June 30, Beta Communications' tax year is a fiscal year ending March 31, and Teresa's tax year
in the calendar year. What is the required tax year of ZYJ Partnership?
a. A tax year ending March 31.

b. A tax year ending June 30.

c. A tax year ending September 30.

d. A calendar year.

8. Which one of the following statements regarding how partnerships compute their taxable income is not
correct?
a. Partnerships generally compute their income the same way as individuals.

b. Partnerships must separately state certain items that their partners are required to account for separately in
determining their income tax.
c. Partnerships make elections affecting the computation of their taxable income.

d. Partnerships may deduct foreign income taxes paid.

9. Which one of the following statements about a partner's distributive share of partnership income, gain,
loss, deduction, and credit is not correct?
a. A partner's distributive share of a partnership's income, gain, loss, deduction, and credit is determined by the
partnership agreement.
b. The economic effect of an allocation is "substantial" if there is a reasonable possibility that the allocation will
substantially affect the dollar amounts to be received by the partners from the partnership (independent of tax
consequences).
c. A partner's distributive share of partnership income, gains, losses, deductions, and credits is reported by the
partnership to the partner using Schedule K-1.
d. A partner's distributive share of income, gain, loss, deduction, or credit will be determined in accordance with the
partner's interest in the partnership under certain circumstances.
10. Which one of the following statements regarding the taxation of partners on partnership income is not
correct?
a. A partner may be taxed on the partner's distributive share of partnership income even though none of that
income is distributed to the partner during the tax year.
b. The character of any item of income, deduction, or credit included in a partner's distributive share is
determined at the partnership level and retains that character in the partner's distributive share.
c. Partners may deduct their distributive share of partnership loss when computing their taxable income,
regardless of the adjusted basis of their partnership interest.
d. Partners will be denied a deduction for their distributive share of a loss to the extent that the loss exceeds
their amount at risk in a partnership activity.
11. Erik Nixon is a partner in XYZ Partnership. Erik's tax year is the calendar year, and XYZ Partnership's
tax year is a fiscal year ending September 30. Erik's distributive share of partnership income for the
partnership's tax year ending September 30, 20X1 was $120,000, but only $72,000 actually was
distributed to Erik. Partnership income was earned ratably during the partnership's tax year (i.e.,
$10,000 per month). During that same tax year of the partnership, XYZ Partnership made $60,000 in
deductible payments to Erik for services rendered the partnership. He was paid $5,000 each month.
What amount does Erik have to include in his taxable income for 20X1?
a. $132,000

b. $135,000
 c. $165,000

d. $180,000

12. Which one of the following statements regarding guaranteed payments is not correct?
a. For a payment to qualify as a guaranteed payment, it must be determined without regard to an item of gross
income.
b. A payment made to a partner for services or for the use of capital may be a guaranteed payment.

c. If a partner is entitled to receive a minimum payment from a partnership, the partner will be treated as
receiving a guaranteed payment to the extent that the minimum payment exceeds the partner's distributive
share of partnership income.
d. Income tax does not have to be withheld from guaranteed payments.

13. Which one of the following statements is not correct?

a. If Angel Flucker, who owns a 55 percent interest in FBW Partnership, realizes a $5,000 loss on the sale of
machinery to the partnership, he may not deduct his loss.
b. Willie Floyd owns a 40 percent interest in BRW Partnership, and his uncle owns the remaining 60 percent
interest in the partnership. If Willie realizes a $3,000 loss on the sale of equipment to the partnership, he
may not deduct his loss.
c. Jacqueline Griffin owns a 45 percent interest in GHR Partnership, her half-sister Jackie owns a 5 percent
interest in the partnership, and a corporation in which she has a two percent interest owns 50 percent of the
partnership. If she realizes a $1,500 loss on the sale of a computer to the partnership, she cannot deduct
her loss.
d. Annie Garrett, who owns a 55 percent interest in the EIJ Partnership, sold land she had held for investment
to the partnership for use in its business. The gain she realized from the sale of the land is ordinary income.
14. Which one of the following events will not cause the partnership's tax year to close with respect to the
partner?
a. Elizabeth Ruiz, who owns 80 percent of the profits and capital interests in HYO Partnership, sells 50 percent
of the total interests in partnership capital and profits.
b. Francis Neylon's 30-percent interest in the profits and capital of PQR Partnership is liquidated.

c. Gregory Prill, a partner in EYO Partnership, gifts half of his interest in partnership capital and profits to his
son.
d. Diana Ngo, a partner in NIA Partnership, dies, and her son inherits her interest in the partnership.

15. Under which one of the following circumstances will a partnership not be considered terminated?
a. On February 15, 20X1 Ann Poston sold a 30-percent interest in the profits and capital of SVU
Partnership. On February 1, 20X2, Ruth Rothman sold a 20-percent interest in the profits and capital of
SVU Partnership.
b. On March 1, 20X2, Ernest Griffin sold his 30-percent interest in the profits and capital of BQS Partnership
to Kevin Harding. On September 1, 20X2, Kevin sold the 30-percent interest in the profits and capital of
BQS Partnership to Gladys Jackson.
c. On August 22, 20X2, CQR Partnership merged with another partnership. Following the merger, Judith
Mamer and Victoria Mensah, both partners of CQR Partnership, owned 45 percent of the capital and
profits interests of the resulting partnership. Partners of the other partnership involved in the merger
owned the remaining 55 percent of the capital and profits interests of the resulting partnership.
d. On April 12, 20X2, DYI Partnership divided into two partnerships, one to run its commercial leasing
operations, and one partnership to run its residential leasing operations. The partners of one resulting
partnership owned 50 percent of the profits and capital interests of DYI Partnership, and the partners of
the other resulting partnership owned 50 percent of the profits and capital interests of DYI Partnership.