Chapter 6 - Income Tax of a Partnership

For purpose of taxation, which of the following statement regarding partnership is correct?

I. Classified into two major categories, partnership in trade and general professional partnership.

II. Partnership in trade is treated as corporate taxpayer.

III. General professional partnership is exempted from income tax.

• A. I, II and III

• B. I, and II only

• C. I and III only

• D. I only

Statement 1: All partnerships are taxed in the same manner as corporations.

Statement 2: The income of a general commercial partnership is also subject to MCIT or Normal Corporate Tax whichever is applicable.

• A. Statement 1 & 2 are false.

• B. Statement 1 is true but Statement 2 is false.

• C. Statement 1 is false but Statement 2 is true.

• D. Statement 1 & 2 are true.

A taxable partnership may be subject to the following taxes:

I. Minimum corporate income tax.

II. Gross income tax

III. Improperly accumulated earning tax.

• A. I, II and III

• B. I and II only

• C. I and III only

• D. I only

A partnership is formed by persons for sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

• A. Join venture

• B. General professional partnership

• C. Trading partnership

• D. Joint accounts

A general professional partnership is exempt from income tax but is required to file an income tax return.

• A. For statistical purposes.

• B.Because the net income of the partnership will be traced into the income tax return of the partners.

• C. Because all income earners are required to file income tax returns.

• D. None of the above.

In a general professional partnership (GPP),

• A. The GPP shall report total partnership income and each individual partnership's share of that income.

• B. The GPP shall be taxed on its income in the same manner as private partnerships.

• C. The partners are not liable for taxes on income withdrawn from the partnership.

• D. None of the above.

Which of the following statement is wrong?

• A. A general partnership in trade is not taxable as a corporation.

• B. A joint venture for undertaking construction projects is not taxable as a corporation.

• C. A consortium for energy operations pursuant to an operating consortium agreement under a service contract with the government is not taxable as a corporation.

• D. A co-ownership where the activities of the co-owner are limited to the preservation of property and collection of income from the property is not taxable as a corporation.

Statement 1: For purposes of computing the distributive share of the partners of a general professional partnership, the net income of the partnership shall be computed in the same manner as a corporation.

Statement 2: Partners of a taxable partnership are considered as shareholders and profits distributed to them by the partnership are considered as dividends.

• A. Statement 1 and 2 are false.

• B. Statement 1 is true but Statement 2 is false.

• C. Statement 1 is false but Statement 2 is true.

• D. Statement 1 and 2 are true.

Statement 1: The distributive share of a partner in the net income of a taxable partnership is equal to each partner's distributive share of the net income declared by the partnership for a taxable year after deducting the corresponding corporate tax.

Statement 2: If a taxable partnership sustains net operating loss, the partners shall be entitled to deduct their respective shares in the net operating loss from their individual gross income.

• A. Statement 1 and 2 are false.

• B. Statement 1 is true but Statement 2 is false.

• C. Statement 1 is false but statement 2 is true.

• D. Statement 1 and 2 are true

The partner's share in the profits of a general professional partnership is regarded as received by the partners although not yet distributed. This concept of income reporting under the Tax Code is known as:

• A. Installment basis of reporting income.

• B. Accrual basis of reporting income.

• C. Constructive receipt basis of reporting income.

• D. Hybrid method of reporting income.