Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The Dominguez Partnership has the following assets on December 31: $\begin{array}{lrr}
&\underline{\text { Basis }}&\underline{\text { Fair Market Value }}\
\text { Cash } & \$ 10,000 & \$ 10,000 \
\text { Receivables } & 5,000 & 10,000 \
\text { Inventory } & 20,000 & 30,000
\end{array}$
 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?

Accepted Answer

A) 0 
B) $1,000 
C) $2,000 
D) $3,000 
A) 0 
B) $1,000 
C) $2,000 
D) $3,000

Question 3

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 effect do the debts have on Ray's basis?

Accepted Answer

A) Increase of $22,500 
B) Increase of $25,000 
C) Increase of $45,000 
D) Increase of $67,500 
A) Increase of $22,500 
B) Increase of $25,000 
C) Increase of $45,000 
D) Increase of $67,500

Question 4

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

Accepted Answer

A) The tax year used by any principal partner 
B) The tax year used by the partners who own a majority interest 
C) A tax year that results in only a 2-month deferral of income for the partners 
D) C's tax year if C owns more than 50 percent of the partnership 
A) The tax year used by any principal partner 
B) The tax year used by the partners who own a majority interest 
C) A tax year that results in only a 2-month deferral of income for the partners 
D) C's tax year if C owns more than 50 percent of the partnership

Question 5

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?

Accepted Answer

A) 0 
B) ($9,000) 
C) ($15,000) 
D) ($27,000) 
A) 0 
B) ($9,000) 
C) ($15,000) 
D) ($27,000)

Question 6

Samantha and Ashley form the MAS General Partnership.Samantha contributed $20,000 cash in exchange for her 50 percent partnership interest.During the first year of partnership operations, the partnership reported net taxable income of $10,000, Samantha withdrew $8,000 cash from the partnership, and the partnership took out an $18,000 loan on the last day of the year.Samantha's adjusted basis for her partnership interest at year end is:

Accepted Answer

A) $38,000 
B) $30,000 
C) $26,000 
D) $17,000 
A) $38,000 
B) $30,000 
C) $26,000 
D) $17,000

Question 7

Kylie is single and has taxable income of $320,000 of which $130,000 is attributable to her consulting sole proprietorship.She paid W-2 wages to her employees of $75,000.If the threshold amount for 2019 is $160,725, what is Kylie's qualified business income deduction?

Accepted Answer

A) $0 
B) $11,000 
C) $26,000 
D) $32,500 
A) $0 
B) $11,000 
C) $26,000 
D) $32,500

Question 8

Material participation includes all of the following except:

Accepted Answer

A) Material participation in 5 of the 10 preceding years. 
B) Taxpayer materially participated in the five preceding years in a personal service activity. 
C) The taxpayer has 500 or more hours of participation 
D) All are material participation standards. 
A) Material participation in 5 of the 10 preceding years. 
B) Taxpayer materially participated in the five preceding years in a personal service activity. 
C) The taxpayer has 500 or more hours of participation 
D) All are material participation standards.

Question 9

Amber has a tax basis of $67,000 in her partnership interest in Lightfoot Partnership, which consists of her $27,000 net contribution to partnership capital and her $40,000 share of partnership debt.Amber receives a distribution of land (a capital asset) with a tax basis of $39,000 and a fair market value of $106,000 in complete liquidation of her partnership interest.The property is not encumbered by any of the partnership's liabilities.What is Amber's tax basis for the distributed property?

Accepted Answer

A) $27,000 
B) $39,000 
C) $67,000 
D) $106,000 
A) $27,000 
B) $39,000 
C) $67,000 
D) $106,000

Question 10

Partners pay taxes on their share of all the partnership net income annually.

Accepted Answer

A) True 
 B)False

Question 11

Michael was a partner in the M&M Partnership until November 1, when he received a liquidating distribution of investment property with a tax basis of $28,000 and a fair market value of $75,000.Prior to this distribution, his tax basis in his partnership interest was $40,000.What is his tax basis in the property received from the partnership?

Accepted Answer

A) $75,000 
B) $40,000 
C) $28,000 
D) 0 
A) $75,000 
B) $40,000 
C) $28,000 
D) 0

Question 12

Which of the following is not a characteristic of an S corporation?

Accepted Answer

A) Must be formed under state law 
B) The transfer of property for stock is always tax-free 
C) A shareholder's share of ordinary income increases his or her stock basis 
D) The shareholder never recognizes loss on a nonliquidating distribution 
A) Must be formed under state law 
B) The transfer of property for stock is always tax-free 
C) A shareholder's share of ordinary income increases his or her stock basis 
D) The shareholder never recognizes loss on a nonliquidating distribution

Question 13

Which of the following statements does not apply to a qualifying S corporation?

Accepted Answer

A) It may have 55 shareholders 
B) It may have a resident alien shareholder 
C) It may only have one class of stock outstanding 
D) It is subject to the corporate income tax 
A) It may have 55 shareholders 
B) It may have a resident alien shareholder 
C) It may only have one class of stock outstanding 
D) It is subject to the corporate income tax

Question 14

Kevin and Jennifer are 60% and 40% shareholders, respectively, in an S corporation.If the corporation reports $10,000 of nonseparately stated income and $2,000 of capital gain, how much is allocated to Jennifer?

Accepted Answer

A) $4,000 income only 
B) $4,000 income and $2,000 of capital gain 
C) $4,000 income and $800 of capital gain 
D) $6,000 income and $2,000 of capital gain 
A) $4,000 income only 
B) $4,000 income and $2,000 of capital gain 
C) $4,000 income and $800 of capital gain 
D) $6,000 income and $2,000 of capital gain

Question 15

There are special rules for an S corporation that must be followed when the corporation decides to liquidate that differs from the rules for C corporations.

Accepted Answer

A) True 
 B)False

Question 16

Once established at entry, a partner's basis account does not change.

Accepted Answer

A) True 
 B)False

Question 17

A sole proprietor is considered a self-employed individual.

Accepted Answer

A) True 
 B)False

Question 18

Victoria is a 50 percent partner in VR Partners.Her partnership tax basis is $28,000 on December 31 when she receives a current distribution of property with a partnership tax basis of $25,000 and a fair market value of $46,000.What is Victoria's tax basis in the distributed property?

Accepted Answer

A) $14,000 
B) $25,000 
C) $28,000 
D) $46,000 
A) $14,000 
B) $25,000 
C) $28,000 
D) $46,000

Question 19

Natalie, a partner in a real estate partnership, receives a nonliquidating distribution consisting of $25,000 cash and property (a Section 1231 asset) valued at $60,000 in July.The partnership's tax basis in the property is $18,000 and Natalie's tax basis in her partnership interest is $21,000.What is Natalie's recognized gain on the distribution and her tax basis in the property received?

Accepted Answer

A) Zero gain; zero basis in the property. 
B) $4,000 gain; zero basis in the property. 
C) $22,000 gain; $18,000 basis in the property. 
D) Zero gain; $18,000 basis in the property. 
A) Zero gain; zero basis in the property. 
B) $4,000 gain; zero basis in the property. 
C) $22,000 gain; $18,000 basis in the property. 
D) Zero gain; $18,000 basis in the property.

Question 20

Which of the following is not a characteristic of a partnership?

Accepted Answer

A) Must meet 80 percent control requirement for formation to be tax free 
B) Cash distributions to partners may be taxable 
C) Loss is only recognized on liquidating distributions 
D) General partners' salaries are subject to FICA taxes. 
A) Must meet 80 percent control requirement for formation to be tax free 
B) Cash distributions to partners may be taxable 
C) Loss is only recognized on liquidating distributions 
D) General partners' salaries are subject to FICA taxes.

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

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

Kylie is single and has taxable income of $320,000 of which $130,000 is attributable to her consulting sole proprietorship.She paid W-2 wages to her employees of $75,000.If the threshold amount for 2019 is $160,725, what is Kylie's qualified business income deduction?

Material participation includes all of the following except:

Partners pay taxes on their share of all the partnership net income annually.

Which of the following is not a characteristic of an S corporation?

Which of the following statements does not apply to a qualifying S corporation?

Kevin and Jennifer are 60% and 40% shareholders, respectively, in an S corporation.If the corporation reports $10,000 of nonseparately stated income and $2,000 of capital gain, how much is allocated to Jennifer?

There are special rules for an S corporation that must be followed when the corporation decides to liquidate that differs from the rules for C corporations.

Once established at entry, a partner's basis account does not change.

A sole proprietor is considered a self-employed individual.

Victoria is a 50 percent partner in VR Partners.Her partnership tax basis is $28,000 on December 31 when she receives a current distribution of property with a partnership tax basis of $25,000 and a fair market value of $46,000.What is Victoria's tax basis in the distributed property?

Which of the following is not a characteristic of a partnership?

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Estates, Gifts, and Trusts

Filters

Exam 11: Sole Proprietorships and Flow-Through Entities

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

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

Kylie is single and has taxable income of $320,000 of which $130,000 is attributable to her consulting sole proprietorship.She paid W-2 wages to her employees of $75,000.If the threshold amount for 2019 is $160,725, what is Kylie's qualified business income deduction?

Material participation includes all of the following except:

Partners pay taxes on their share of all the partnership net income annually.

Which of the following is not a characteristic of an S corporation?

Which of the following statements does not apply to a qualifying S corporation?

Kevin and Jennifer are 60% and 40% shareholders, respectively, in an S corporation.If the corporation reports $10,000 of nonseparately stated income and $2,000 of capital gain, how much is allocated to Jennifer?

There are special rules for an S corporation that must be followed when the corporation decides to liquidate that differs from the rules for C corporations.

Once established at entry, a partner's basis account does not change.

A sole proprietor is considered a self-employed individual.

Victoria is a 50 percent partner in VR Partners.Her partnership tax basis is $28,000 on December 31 when she receives a current distribution of property with a partnership tax basis of $25,000 and a fair market value of $46,000.What is Victoria's tax basis in the distributed property?

Which of the following is not a characteristic of a partnership?

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Estates, Gifts, and Trusts

Filters