Book/Tax Differences
Which is a temporary book-to-tax difference?
A) Meals & entertainment expenses
B) Life insurance premiums paid for officers
C) Depreciation expense
D) Political contributions
C) Depreciation expense
How does an unblocked investor receive income?
a. Dividends
b. Schedule K-1
c. Capital Gain
d. Check via mail
b. Schedule K-1
True or False: Form M-1 is generally simpler and requires less detailed information than Form M-3, which is intended for larger corporations with more complex financial structures.
True
What is a typical lifespan of a Closed Fund?
5-10 years
This term refers to the amount of money or property a taxpayer invests in partnership:
A) Distribution
B) Retained earnings
C) Capital contribution
C) Capital contribution
Which of the following items should be included on Schedule M-1 to reconcile book income to taxable income?
A) Cash distributions to shareholders
B) Syndication Costs
C) Ending balance of retained earnings
D) Corporate bond interest
B) Syndication Costs
Which shape is used to identify the Management Company in a structure chart?
Circle
Which form must partnerships file to report the limitation on business interest expense deductions under Section 163(j)?
•A) Form 8990
•B) Form 8985
•C) Form 926
•D) Form 20T
A) Form 8990
A partnership has two partners with the following ownership percentages:
The fund generates a total of $200,000 in investment income for the year.
Question:
How much income is allocated to Partner B, at year end, if allocating by commitment?
$160,000
Which of the following is reported on Schedule K-1?
A) Book capital
B) Tax capital
C) Both book and tax capital
D) Neither
B) Tax capital
Which of the following creates a permanent difference that is favorable (select all that apply)?
a) Tax-exempt interest income
b) Life insurance proceeds on key employee
c) Fines and penalties
d) Accelerated depreciation for tax purposes
a) Tax-exempt interest income
b) Life insurance proceeds on key employee
The use of which type of entity in a structure is particularly attractive to foreign investors?
Blocker corporation
What form is issued by a partnership when it receives a Partner's Share of Adjustment from an Administrative Adjustment Request (AAR)?
•A) Form 8865
•B) Form 926
•C) Form 8986
•D) Form 199A
C) Form 8986
How can ordinary income be allocated? (two methods)
A) Post Incentive Book Income Percentage
C) Weighted Average Capital Percentage
A partner with a basis of $30,000 receives a $35,000 cash distribution. What is the tax consequence?
A) No gain recognized
B) $5,000 gain recognized
C) $35,000 gain recognized
D) Basis becomes negative
B) $5,000 gain recognized
Lumber LLC has book depreciation of $80,000 and tax depreciation of $120,000. Which statement is correct?
a) Taxable income is $40,000 higher than book income
b) Taxable income is $40,000 lower than book income
c) This creates a permanent difference
d) No Schedule M-1 adjustment is needed
b) Taxable income is $40,000 lower than book income
Please list the 4 types of ultimate investor we see as a result of private equity fund structures.
Unblocked Investor
Blocked Investor
General Partner
Management Company
What form must U.S. persons file to report their interests in foreign partnerships and ensure compliance with U.S. tax laws regarding foreign income?
•A) Form 8886
•B) Form 926
•C) Form 8865
•D) Form 8621
C) Form 8865
This term in a waterfall allocation refers to a guaranteed return to LPs in step 2 of a traditional 4 step waterfall before the GP receives any carried interest.
What is a preferred return?
This item is included in a partner’s basis but NOT in their capital account.
What is the partner’s share of partnership liabilities?
A corporate blocker reports book income of $1,000,000. It includes $50,000 of meals expense, $30,000 of interest on federal government bonds, and $40,000 federal income tax expense. What is taxable income?
$1,065,000
XYZ fund is planning its structure and wants to account for the unique needs of investors. Investor A is a domestic investor. Investor B is sensitive to ECI and UBTI. How might the flow of investment to Investor B be different compared to A, if planned well for tax purposes?
Investor B's income will flow through a blocker corporation due to their sensitivity to ECI and/or UBTI.
Which of the following relates to the deduction for qualified business income for individuals and is often discussed in the context of tax reporting?
A) 20V
B) Form 8865
C) 199A
D) 20T
C) 199A
Scenario
Year 1 of the fund:
Partner A Contributes $400,000 on January 1st
Partner B contributes $600,000 on January 1st
On August 1st, Partner B transfers entire interest to new partner, Partner C.
The fund generates $400k of net income throughout the year. Calculate the ending capital for Partner C at year end.
$840,000
If a partner contributes $50,000 for a 50% interest, is allocated $80,000 of losses, and the partnership has $80,000 of nonrecourse debt, what is the partner’s ending tax capital?
A) -$30,000
B)-$70,000
C)-$110,000
D) $0 (partner recognizes capital gain)
A) -$30,000