Answer the following statements true (T) or false (F)

Question

1. Although a partner's distributive share of income, deductions, losses, and credits is generally determined by partnership agreement, special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.
2. A partnership sells an asset for a gain. The asset had been transferred to the partnership two years ago by Partner J in exchange for a partnership interest. The asset was worth substantially more than its cost as of the transfer date. The partnership gain will be allocated to all of the partners in accordance with their profit and loss sharing ratios.
3. The basis of a partner's interest in a partnership is adjusted to reflect each partner's share of income and deduction items only if a distribution is made to the partners.
4. A partnership's liabilities have increased by year-end. As a result, partners' bases in their partnership interests will increase.
5. A partner in a partnership will deduct her qualified business income deduction as a deduction for AGI.

Answer 1

1. TRUE
Special allocations must have substantial economic effect.
2. FALSE
The portion of the gain attributable to pre-contribution appreciation will be specially allocated to the contributing partner. The balance of the gain will be allocated in accordance with the profit and loss sharing ratios.
3. FALSE
Basis adjustments for income and deduction items are made currently regardless of whether an actual distribution is made.
4. TRUE
An increase in a partner's share of liabilities is treated as a cash contribution.
5. FALSE
The deduction reduces taxable income. It is deducted after AGI and is deducted regardless of whether the taxpayer takes a standard deduction or itemized deductions.