Finance Marketing

1
A partnership terminates for tax purposes
A) only when it terminates under local partnership law.
B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months.
C) when the sale of partnership assets is made only to an outsider(s) and not to an existing partner(s).
D) when a partnership tax return (Form 1065) ceases to be filed by the partnership.

2
Which of the following statements is correct?
A) A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest.
B) The Section 754 election applies to both sales and distributions.
C) The Section 754 election applies to only current and nonliquidating distributions.
D) A partnership can revoke a Section 754 election every 5 years.

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3
Which of the following are valid reasons for making a 754 election?
A) An incoming partner pays more for a partnership interest that his or her proportionate share of partnership assets.
B) Partners are able to increase their basis in the partnership interest upon the sale of a partnership interest.
C) Partnerships can increase, but not decrease, their basis in partnership assets.
D) A partnership can reduce its basis in assets upon cash distributions to partners.

4
Patrick purchased a one-third interest in the PPP partnership for $600,000. At the time of the purchase, the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000. This year, PPP sells the land for $1,800,000. What is Patrick’s recognized share of the gain on the sale of the land?
A) $0
B) $100,000
C) $300,000
D) none of the above

5
Identify which of the following statements is true.
A) The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.
B) A partnership can elect to be taxed as a corporation under the check-the-box regulations. As a corporation, an S election can be made.
C) For C corporations that desire to be taxed like a partnership, the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership.
D) All are true.