Exam 11: Sole Proprietorships and Flow-Through Entities

The LBJ Partnership has a March 31 year-end. It has three equal partners, L with a June 30 year-end, B with a January 31 year-end, and J with a December 31 year-end. What are the year-end dates for the tax returns of the partners that will include their shares of the partnership's income as of March 31, 2018?

The passive activity loss rules apply

What is a sole proprietorship and how is this business entity taxed?

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's salary is subject to FICA taxes.

What is Alexander's net gain or loss on the liquidation of his 100 percent interest in an S corporation if the corporation distributes the following three assets to him in exchange for his stock: Prior to any distributions, Alexander's basis in his S corporation interest was $160,000.

Natalie, a partner in a real estate partnership, receives a nonliquidating distribution consisting of $25,000 cash and property (a Section 1231 asset) valued at $60,000 in July. The partnership's tax basis in the property is $18,000 and Natalie's tax basis in her partnership interest is $21,000. What is Natalie's recognized gain on the distribution and her tax basis in the property received?

There are special rules for an S corporation that must be followed when the corporation decides to liquidate that differs from the rules for C corporations.

Briefly explain the difference between the entity and the aggregate concepts as related to partnership taxation.

Michael was a partner in the M&M Partnership until November 1, when he received a liquidating distribution of investment property with a tax basis of $28,000 and a fair market value of $75,000. Prior to this distribution, his tax basis in his partnership interest was $40,000. What is his tax basis in the property received from the partnership?

A loss is never recognized on a nonliquidating distribution from a partnership.

The income from a general partnership is passive income to all partners..

Which of the following is not a characteristic of sole proprietorships?

Wilhelmina operates a daycare center in her home as a sole proprietorship. She has gross revenues of $15,000 and the following expenses: Cost of food $1,200; allocated costs of using the home $900; allowable depreciation $500; reasonable salary for her 16 year old daughter for after-school help $3,000. a. Determine Wilhelmina's net income from the sole proprietorship in 2018. b. Determine Wilhelmina's total of self-employment and income taxes on this activity if her marginal tax rate is 24 percent.

A flow-through entity aggregates all its income and subtracts all expense items for reporting its net income.

Material participation includes all of the following except:

Samantha and Ashley form the MAS General Partnership. Samantha contributed $20,000 cash in exchange for her 50 percent partnership interest. During the first year of partnership operations, the partnership reported net taxable income of $10,000, Samantha withdrew $8,000 cash from the partnership, and the partnership took out an $18,000 loan on the last day of the year. Samantha's adjusted basis for her partnership interest at year end is:

Simpco Partnership has gross operating revenue of $450,000, cost of sales of $150,000, salaries to employees of $40,000, a $25,000 Section 179 expense deduction, $10,000 of other depreciation, interest income of $2,000, a $4,000 capital loss, and a $500 charitable contribution deduction. What are the partnership's bottom line net income and its separately stated items?

Victoria is a 50 percent partner in VR Partners. Her partnership tax basis is $28,000 on December 31 when she receives a current distribution of property with a partnership tax basis of $25,000 and a fair market value of $46,000. What is Victoria's tax basis in the distributed property?

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000). What is Logan's basis for the inventory he received?

The accumulated adjustment account