Which of the Following Statements Is Not a Requirement of the Substantial

question 113

Multiple Choice

Which of the following statements is not a requirement of the substantial economic effect test?

• A) Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions.
• B) An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the partner's capital account balance.
• C) A partner with a negative capital account balance must "restore" that capital account, generally by
• Contributing cash to the partnership.
• D) On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) capital account balance.
• E) All of the above statements are requirements of the substantial economic effect test.

---

Definitions:

Periods of Change

Times during which an organization or individual undergoes significant transitions or transformations, requiring adaptation.

Henry Ford

An American industrialist and founder of the Ford Motor Company who is credited with popularizing the assembly line technique of mass production.

Vision

The ability to think about or plan the future with imagination or wisdom, often related to the goals or direction of an organization or individual.

Moving Assembly Line

A production process that breaks down a complex job into a series of smaller tasks, which are completed by a sequence of workers or machines moving the product along a line.