Which of the Following Statements Regarding the Basis Limitation on Deduction

question 9

Multiple Choice

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

• A) If a partner's share of partnership losses exceeds the partner's tax basis in the partnership interest, the excess is not deductible in the current year.
• B) Partnership losses that are not deductible due to the basis limitation can be carried forward indefinitely.
• C) Partners can increase tax basis in their partnership interest only by making additional capital contributions.
• D) If a partnership becomes profitable in the future, the partner's share of such future income will create basis against which loss carryforwards can be deducted.

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, giving shareholders voting rights and a share in the company's profits through dividends.

Noncash Investing

Investing activities that do not involve direct cash transactions, such as acquiring assets through exchange or issuing stock for assets.

Free Cash Flow

The amount of cash a company generates after accounting for capital expenditures required to maintain or expand its asset base.

Productive Capacity

The maximum output a system can produce over a set period under normal conditions.