Exam 11: Sole Proprietorships and Flow-Through Entities

Which of the following is not a potential S corporation tax?

How are income and loss apportioned to S corporation shareholders for taxation?

A sole proprietorship:

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

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

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?

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?

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.

Candi purchased a 10 percent limited partnership interest in rental property for $30,000. The partnership has a $1,300,000 mortgage that is secured by the building. During the current year, the partnership reports a total loss of $200,000 from the rental building. What is Candi's deductible loss and the amount of her loss carryover if her only other income/loss items are $50,000 in salary, an $8,000 capital loss on some stock, and $5,000 of bond interest income?

The Dominguez Partnership has the following assets on December 31: Antonio is a 20 percent partner and has a $7,000 basis in his partnership interest. The partnership has no liabilities. Antonio receives a liquidating distribution of $10,000 cash. What is the amount and character of the gain or income Antonio recognizes on this liquidating distribution?

Active participation requires a higher level of activity than material participation.

Material participation includes all of the following except:

Duet Co. is a calendar year S Corporation owned equally by Patricia and Scott. Duet Co. had taxable income of $40,000 for the current year. Patricia and Scott each received distributions from Duet Co. of $5,000. What is Patricia's taxable income from Duet Co. for the current year?

Mario, who is married filing a joint return, is allocated $510,000 of income and $788,000 of deductions from Perez General Partnership resulting in a $278,000 loss allocated to him for 2018. Mario's basis in the partnership is $300,000. How much of this loss must Mario carry forward to 2019?

Which of the following is not a separately stated item on a partnership's Schedule K?

Which of the following is not an acceptable partnership tax year?

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.

Briefly explain the four loss limitation rules applicable to partners.

Jonathan's basis in his S corporation stock is $4,000 at the end of the year before the corporation reports his $1,500 share of income and distributes $2,500 cash to him. What is his basis at the beginning of the following tax year?

How does a shareholder's basis in his or her S corporation stock change?