Exam 11: Sole Proprietorships and Flow-Through Entities

Nicole, a partner in NAB Partners, has a tax basis in her partnership interest of $47,000 when she completely liquidates her interest in the partnership. Nicole receives a distribution of $20,000 cash and Section 1231 property with a tax basis to the partnership of $18,000 and a fair market value of $12,000. What is Nicole's recognized tax loss on the liquidating distribution?

Noah, a partner in the LMN Partnership, had a tax basis in his partnership interest of $47,000 when he received a liquidating distribution of $25,000 cash and real property (a Section 1231 asset) with a tax basis of $15,000 to the partnership and a fair market value of $75,000. How much gain or loss does Noah recognize on the distribution and what is his basis in the property received?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Must be formed under state law.

Manuel purchased a 30% interest in MAC general partnership for $40,000 cash and materially participated in the partnership for the entire year. The partnership had $50,000 in liabilities when Manuel purchased his interest and the liabilities increased $10,000 during the year. If the partnership incurred a $300,000 loss this year, how much of this loss can Manuel deduct?

What is the effect on the AAA if an S corporation distributes a piece of property valued at $10,000 with a $5,000 basis to 50 percent shareholder and $10,000 cash to the other 50 percent shareholder in a nonliquidating distribution?

Only 50 percent or more of the shareholders of an S corporation must consent to the S election.

Jacob is a partner in the JB Partnership with a basis in his partnership interest is $35,000. He receives a nonliquidating distribution of $25,000 cash and real property with a partnership basis of $18,000 and a fair market value of $30,000. How much taxable gain will Jacob recognize on the distribution?

Bill has a $15,000 passive loss, a $12,000 passive gain, $20,000 of active income, and a $14,000 active loss. What is Bill's current year net taxable income or loss?

Stewart is a 30 percent general partner in STP Partnership. His basis in his partnership interest at the beginning of the year was $40,000. During the year, the partnership reported a $30,000 loss and paid off a $120,000 recourse debt. What is Stewart's year-end basis in his partnership interest?

Mary purchased 40 percent of an S corporation on February 28 of the current year and sells a 20 percent interest on November 30. If the corporation reports $10,000 of income for the year, what income does it report on Mary's Schedule K-1.

Why are partnerships and S corporations called flow-through entities?

Which of the following is not a requirement to make an S election?

Amber has a tax basis of $67,000 in her partnership interest in Lightfoot Partnership, which consists of her $27,000 net contribution to partnership capital and her $40,000 share of partnership debt. Amber receives a distribution of land (a capital asset) with a tax basis of $39,000 and a fair market value of $106,000 in complete liquidation of her partnership interest. The property is not encumbered by any of the partnership's liabilities. What is Amber's tax basis for the distributed property?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Owners pay self-employment taxes on income from entity.

What kind of an entity is a limited liability company for the purpose of taxing its income?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Owner may deduct losses if there is basis because of loans to the entity by the owner.

What is required for a taxpayer to actively participate in a rental property activity to qualify for a limited deduction of losses?

A limited partnership must have a general partner.

Which of the following statements does not apply to a qualifying S corporation?

To qualify for the limited deduction for rental real estate losses