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

question 206

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.

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Definitions:

Legal-Rational

A form of authority based on established laws, rules, and procedures that are designed to be objective and impersonal.

Traditional Power

Power that is derived from established customs, practices, or institutions historically recognized within a society or organization.

Charismatic Power

Influence derived from an individual's charm and appeal, which can inspire devotion and enthusiasm in others.

Power Politics

The strategies and tactics used to assert power, influence others, and achieve objectives within political or organizational contexts.