REG 2021 Released Questions – please help!

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  • #3303685
    Chloe
    Participant

    From the most recent testlet, the question says…

    Which of the following is true about taxation of a partner in a partnership?
    a. Partners must include their share of partnership capital gains as ordinary income on their personal income tax returns.
    b. If a partner's loss is limited on one tax year because of the at-risk rules, it may be carried forward to a later year, subject to that year's at-risk
    computation.
    c.
    d.

    The answer is b but can please someone explain why the answer is not a?

    #3303772
    Recked
    Participant

    Check out the K-1.
    https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

    Capital gains are reported in boxes 8 and 9, while ordinary income is reported in box 1.
    Capital gains has preferential tax treatment on the personal return so it needs to be stated and reported separately from capital gains income.
    Make sense?

    If a) did not have the word “ordinary”, it would completely change the question/answer.

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

    FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
    AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
    REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
    BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

    #3303778
    Nate
    Participant

    That's a good trick question, I have many years of tax so I was able to catch it right away, but Recked pointed it out, they would be taxed on the partner's personal return as capital gains tax not as ordinary income. This just shows how detailed the tax questions on REG are.

    AUD: 54 (10/31/15); 83 (12/02/17)
    BEC: 70 (01/31/16); 90 (07/02/17)
    FAR: 73 (10/03/15); 88 (02/17/18)
    REG: 83 (06/09/18)
    AICPA Ethics: 91 (06/28/18)
    Licensed: 08/16/18
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