Question

Concerning a partnership's Form 1065, which of the following statements is not true?

a.The partnership deducts its allowable business interest expense on Form 1065, page 1, and allocates any excess to the partners for carryover.

b.The partnership's equivalent of taxable income is reported in the "Analysis of Income (Loss)."

c.All taxable/deductible partnership income and expense items are reported on Form 1065, page 1.

d.The partnership balance sheet on Schedule L is generally presented on a financial (book) basis.

e.The partnership reconciles its "Income (Loss) per Books" with "Income (Loss) per Return" on Schedule M-1 or M-3.

Answer 1

Answer: A

For partnerships, any disallowed business interest expense deduction (“excess business interest”) is passed through to the partners and does not carry over as interest paid or accrued by the partnership in the subsequent taxable year. Instead, such excess business interest must be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income.

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