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

question 20

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 twice when he sells his partnership interest because he was not taxed on this income when it was earned
• 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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Definitions:

IFRS

International Financial Reporting Standards, which are accounting rules set by the International Accounting Standards Board (IASB) for the preparation of financial statements globally.

GAAP

Stands for Generally Accepted Accounting Principles, which are a common set of accounting rules and standards used in the United States.

Notes Payable

Written agreements where a borrower promises to pay back a specified sum to the lender at a future date.

Adjusting Entry

A journal entry made at the end of an accounting period to record any unrecognized income or expenses for that period.