Exam 11: Sole Proprietorships and Flow-Through Entities

What is the effect on the AAA if an S corporation distributes a piece of property valued at $10,000 with a $5,000 basis to 50 percent shareholder and $10,000 cash to the other 50 percent shareholder in a nonliquidating distribution?

At the beginning of the year, Jill's basis in her 40 percent limited partnership interest was $10,000.During the year, the partnership reported a loss of $90,000 and the partnership obtained a $40,000 recourse loan on some machinery.How much loss may Jill deduct if she has $40,000 of passive income?

Sam has $80,000 of net income from his sole proprietorship in 2019.What is his deduction for AGI for self-employment taxes?

A general partner in a limited partnership is not protected from the partnership's liabilities.

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

The basis limitation rules are applied before the at-risk and passive loss limitation rules.

Ray, Ronnie and Joe are partners in a limited partnership.Ray and Ronnie, the limited partners, each own 45 percent of the partnership and Joe, the general partner, owns the other 10 percent.The partnership incurs $50,000 of nonrecourse debt and $100,000 of recourse debt.What is the effect on Joe's basis for these debts?

Calvin sells his 40 percent interest in a partnership with a $70,000 basis for $75,000.The partnership has two assets, inventory valued at $100,000 with a $50,000 basis and investments valued at $87,500 that have a basis of $125,000.How will Calvin report the sale of the partnership interest?

The accumulated adjustment account

James and Jerry are equal partners in JJ partnership.James works full-time in the business and receives a $40,000 guaranteed salary from the partnership.Jerry is to receive the first $20,000 of profit before the remainder is divided equally between James and Jerry.If the accounting income before either of these payments is $30,000, what is the amount of income or loss allocated to Jerry?

A limited partnership must have a general partner.

Recourse debts can only be satisfied with the property used as collateral.

Leo is a 50% shareholder in Small Corporation, an S Corporation from its incorporation.Leo receives a property distribution when his basis in his Small stock is $45,000.The property distributed has a fair market value of $45,000 and a basis to Small Corporation of $25,000.What is the gain recognized by Small Corporation as a result of the distribution and what is Leo's basis for the property he received?

Carol owns 40 percent of CJ Partnership.The partnership reports $170,000 of revenue, $60,000 cost of goods sold, and $70,000 of other expenses that include a $2,000 charitable contribution and a $5,000 Section 179 deduction.CJ Partnership also paid $1,500 of doctor bills for Carol, What is the ordinary business income reported on line 1 of Carol's Schedule K-1?

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

A person satisfies material participation requirements only through current activity.

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

Jared owns 50% of an S corporation's stock.His basis in the stock was $50,000 on January 1, 2018.On February 1, 2018, the S corporation borrowed $30,000 from Jared, signing a formal note.The S corporation reported an ordinary loss of $150,000 at the end of 2018 and ordinary income of $20,000 at the end of 2019.What are Jared's bases in his stock and his note at the end of both 2018 and 2019?

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?

Jacob is a partner in the JB Partnership with a basis in his partnership interest is $35,000.He receives a nonliquidating distribution of $25,000 cash and real property with a partnership basis of $18,000 and a fair market value of $30,000.How much taxable gain will Jacob recognize on the distribution?