Exam 33: Partnerships and S Corporations

Ben is a 30% partner in a partnership.The partnership guarantees Ben payments of $25,000 for the year.If the partnership has ordinary income of $15,000 before adjustment for the guaranteed payment,Ben must report

In a limited partnership,the limited partners are liable for partnership debts only to the extent of their investment in the partnership plus any amount they commit to contribute to the partnership if called upon.

Gains on sales or exchanges between a partner and the partnership are treated as ordinary income if the partner owns more than a 50% interest in the capital or profits and the asset that is exchanged is not a capital asset in the transferee's hands.

When a partnership interest is sold,ordinary income may result if a partnership has unrealized receivables or inventory items.

Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land.The partnership had purchased the land five years ago for $20,000,but it is worth $28,000 at the time of the distribution.Ariel's predistribution basis is $17,000.How much income will Ariel recognize due to the distribution,and what is her basis in the land?

Scott provides accounting services worth $40,000 to the ABC Partnership in exchange for a 20% interest in the capital and profits of the partnership.The tax result to Scott is

John contributes land having $110,000 FMV and a $90,000 adjusted basis which is subject to a $60,000 mortgage in exchange for a one-third interest in the AJK Partnership.The partnership owes no other liabilities.After the contribution,Abby,John,and Kent share profits and losses equally and each has a one-third interest in the partnership capital.John's basis in the partnership interest is

Bryan Corporation,an S corporation since its organization,is owned entirely by Mr.Bryan.The corporation uses a calendar year as its taxable year.Mr.Bryan paid $120,000 for his Bryan stock when the corporation was formed on January 1 of this year.For this year,Bryan Corporation reported the following results: Ordinary Income \ 65,000 Dividend Income 20,000 Short-term capital loss (2,000) Distributions of $40,000 were made during the year.What is the basis of Mr.Bryan's stock on December 31?

A contribution of services to a partnership will result in recognition of compensation to the contributing partner equal to the fair market value of the services as well as an increase in partnership basis to the extent of the income recognized.

Separately stated items are allocated to the S corporation shareholders based on the number of shares of stock owned on the last day of the S corporation's taxable year.

Trixt Inc.,an S corporation,reports the following for the current year: Service revenue \ 800,000 Dividend income 30,000 Wages paid to shareholder- employees -450,000 Charitable contributions -20,000 Administrative expense -130,000 Sec. 1231loss -40,000 Net income \ 190,000 On its tax return,in addition to separately stated items,Trixt will report ordinary income of

Ezinne transfers land with an adjusted basis of $50,000 and a FMV of $95,000 to a new business in exchange for a 50% ownership interest.The land is subject to a $60,000 mortgage which the business will assume.The business has no other liabilities outstanding.Indicate the amount of gain recognized by Ezinne due to this exchange if the building is transferred to (1)a corporation and (2)a partnership.Assume Sec.351 is satisfied in the case of the corporation and Sec.721 is satisfied in the case of the partnership.

A partnership sells equipment and recognizes depreciation recapture under Sec.1245.In reporting its results for the year,the partnership will separately state the Sec.1245 depreciation recapture.

Which of the following characteristics can disqualify a corporation from S corporation status?

Losses are disallowed on sales or exchanges between a partner and the partnership if the partner owns directly or indirectly more than a 50% interest in the capital or profits.

The qualified business deduction is calculated and applied at the partner,not the partnership,level.

Although a partner's distributive share of income,deductions,losses,and credits is generally determined by partnership agreement,special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.

In 2019,Phuong transferred land having a $150,000 FMV and a $120,000 adjusted basis,which is subject to a $110,000 mortgage in exchange for a one-third interest in the DSF Partnership.Phuong had purchased the land in 2015,but the mortgage was not received until 2016.The partnership owes no other liabilities.Phuong,Austin,and Alison share profits and losses equally and each has a one-third interest in partnership capital.The partnership's holding period for the land transferred by partner Phuong commences in

The partnership's assumption of a liability from a partner is treated as a cash distribution to the partner whose liability is assumed,which decreases his basis in the partnership.

Ron,a single taxpayer,receives $750,000 of taxable income from the family trust fund.In addition,he has a 50% interest in a partnership in which he is a material participant.The partnership incurs a $600,000 loss,50% of which is allocated to Ron.Ron's basis in his partnership interest before adjustment for the loss is $800,000.Ron will be able to deduct his full $300,000 share of the partnership loss.