SIE Understanding Products and Their Risks Practice Question 64

Correct Answer: B

Explanation:

B: Choice B is correct because the owners do not materially participate in the operation of the DPP, the DPP is not taxed, and the owner is taxed on passive income reported on the federal return. Passive losses can generally only be applied against passive income for the same year. Passive losses in excess of the passive income for the year, in some cases, may be carried over to the following year. Choice A is incorrect because the DPP is not taxed. Choice C is incorrect because the owners do not materially participate in the operation of the DPP. Choice D is incorrect because the DPP is not taxed and the owner receives taxable income or taxable loss, according to the financial results of the DPP.