AC471 Exam Three Review

Which of the following is NOT a characteristic of a partnership?

• Must have a profit motive

• Can include arrangements to share expenses

• Is a flow-through entity

• Income and losses are allocated to owners

What is the primary tax characteristic of a flow-through entity?

• The entity pays income tax on behalf of its owners

• The entity's income is taxed at a flat rate

• Income and losses are allocated to the owners

• The entity is exempt from income tax

What is the primary difference between a general partner and a limited partner?

• General partners have limited liability, while limited partners have unlimited liability

• General partners have management rights, while limited partners do not

• General partners are not subject to self-employment tax, while limited partners are

• General partners have no liability for partnership debts

Which type of partnership requires filing articles of organization with the state?

• General partnership

• Limited partnership

• Both

• Neither

How is recourse debt allocated in a partnership?

• Based on profit-sharing percentages

• Only to general partners with economic risk of loss

• Equally among all partners

• To partners with the highest capital contributions

A partner's initial outside basis includes all of the following EXCEPT:

• Basis of assets contributed

• Share of partnership debt

• FMV of partnership distributions

• Share of income allocations

A partnership can exist even without a profit motive

• True

• False

A partner's outside basis can never go below zero

• True

• False

A limited partner is subject to self-employment tax on both ordinary income and guaranteed payments

• True

• False

Nonrecourse debt is allocated to all partners according to their profit-sharing percentages

• True

• False