In 2015,Arnold Invests $80,000 for a 20% Interest in a Partnership

question 72

Multiple Choice

In 2015,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

• A)Since Arnold has only $80,000 of capital at risk,he cannot deduct any more than this amount against his other income.
• B)Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
• C)If Arnold has taxable income of $40,000 from the partnership in 2016 and there are no other transactions that affect his at-risk amount,he can use all of the $20,000 loss carried over from 2015.
• D)Arnold's $100,000 loss is nondeductible in 2015 and 2016 under the passive loss provisions.
• E)All of the statements are correct.

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Definitions:

Reciprocity/Obligation Rule

The social norm of responding to a positive action with another positive action, fostering mutual benefit.

Rejection-Then-Retreat Approach

A persuasive technique where an initially larger request is made knowing it will be rejected so that a smaller request (the desired outcome) seems more reasonable.

Reciprocity

A social principle where positive actions lead to similar responses by others, fostering mutual benefit or exchange.

Consensus

General agreement among the members of a group or community.