Exam 33: Partnerships and S Corporations

Hal transferred land having a $160,000 FMV and a $75,000 adjusted basis which is subject to a $150,000 mortgage in exchange for a one-third interest in the HEF Partnership.Hal acquired the land ten years ago.The partnership owes no other liabilities.Hal,Ellen,and Felix share profits and losses equally and each has a one-third interest in partnership capital.Hal's basis in the one-third partnership interest is

A taxpayer has various businesses which operate in different legal and tax forms.The qualified business income deduction will apply to the business income earned from all of the following businesses except

Worthy Corporation elected to be taxed as an S corporation on January 1,of last year,effective last year.It had previously been a C corporation.On the effective date of the S election,Worthy had land with a $70,000 basis and a $210,000 FMV.No net unrealized losses exist on the date of the S corporation election.The land is sold this year for $250,000.The tax result of the sale by Worthy is

To receive S corporation treatment,a qualifying shareholder must be an individual,partnership,estate,qualifying trust,or certain kinds of tax-exempt organizations.

Realto LLC is a tax partnership which has four equal partners.The LLC holds highly appreciated real estate in midtown Manhattan.Trina is about to purchase a 20% ownership interest in the LLC.To minimize her future tax burden as a partner,she should negotiate a Sec.754 election with the current partners.

Assuming extensions are not filed,tax returns for calendar-year S corporations and partnerships are both due on April 15.

A partnership's interest expense deduction is limited by the 30% of adjusted taxable income limitation.The excess interest expense

If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

Stephanie owns a 25% interest in a qualifying S corporation.Stephanie's basis in the stock was $40,000 at the end of the year after adjustments are made for capital contributions and distributions (but not operating results).Stephanie also loaned the S corporation $10,000 this year.The S corporation incurred a $240,000 ordinary loss this year.Assume that next year the S corporation's ordinary income is $160,000.Stephanie's basis in her stock at the end of next year is

Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.

An S corporation distributes land to its shareholders.The land has a $60,000 basis and a $90,000 FMV.The basis of the land to the shareholder is

Which of the following statements regarding voluntary revocation of the S election is incorrect?

Tonya is the 100% shareholder of a corporation established five years ago.It has always been an S corporation.After adjustment for this year's corporate income,but before taking distributions into account,Tonya has a $50,000 stock basis.The corporation pays Tonya a $60,000 cash distribution.As a result of this distribution,Tonya will have an ending stock basis and recognized income of

An LLC that elects to be taxed like a partnership is also classified as a partnership for legal purposes.

Atiqa receives a nonliquidating distribution of land from her partnership.The partnership purchased the land five years ago for $20,000.At the time of the distribution,it is worth $28,000.Prior to the distribution,Atiqa's basis in her partnership interest is $37,000.Due to the distribution,Atiqa and the partnership will recognize income of

Etta transfers property with an adjusted basis of $60,000 in exchange for a 50% partnership interest.The property is subject to a $70,000 mortgage which the partnership will assume.The partnership has no other liabilities.Etta will recognize a $10,000 gain on the exchange due to the negative basis limitation.

Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?

Pass-through entities are taxed at only one level-the ownership level.

S corporations are a common form for small businesses because they offer more flexibility than partnerships in terms of ownership structure and allocation of income.

A business distributes land to one of its owners.The business purchased the land a few years ago for $15,000,but it is now worth $35,000.Compare the treatment of this distribution when made by a partnership as opposed to an S corporation.Consider the impact on the business and the partner/shareholder and the determination of basis in the property.