Does Adjusting a Partner's Basis for Tax-Exempt Income Prevent Double

question 5

Multiple Choice

Does adjusting a partner's basis for tax-exempt income prevent double taxation?

• A)Yes, if this basis adjustment is not made, the partner will be taxed once when the income is allocated to him and a second time when he sells his partnership interest.
• B)Yes, if this basis adjustment is not made, the partner will be taxed on the tax-exempt income when he sells his partnership interest and again if the tax-exempt income exceeds $10,000.
• C)No, making this adjustment to the partner's basis prevents the tax-exempt income from being converted to taxable income.
• D)No, the partner should not adjust his tax basis by his share of tax-exempt income.

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