Exam 33: Partnerships and S Corporations

A shareholder sells his S corporation stock and realizes a $500,000 gain.The stock had been held five years.Which of the following statements most completely describes the character of the gain?

The deduction limitation on net business interest expense is applied at the partner,not the partnership,level.

Explain the difference between expenses of organizing a partnership and expenses of syndicating a partnership and the difference in their tax treatment.

Rowan and Sanjay are equal partners in a partnership,which uses the calendar year as its tax year.On September 1,this year,Hailley contributed $60,000 cash for a one-third interest in the partnership.The partnership reports $72,000 of ordinary income for the tax year ending on December 31 of this year.The income allocation to Hailley is (assume the elective proration method with a monthly convention)

Eva is the sole shareholder of an S corporation.Eva gifts half of her S corporation stock to Adam,her newborn son.The S corporation is a highly profitable manufacturing company.The pass-through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.