Exam 11: Sole Proprietorships and Flow-Through Entities

Mario, who is married filing a joint return, is allocated $510,000 of income and $788,000 of deductions from Perez General Partnership resulting in a $278,000 loss allocated to him for 2019.Mario's basis in the partnership is $300,000.How much of this loss must Mario carry forward to 2020?

An S election terminates

The S corporation income tax return includes all of the following except

Corbin has a $15,000 basis in his 50 percent ownership in an S corporation and loaned the corporation $5,000 last year.The corporation has $30,000 of other debt.This year the corporation reported a $100,000 loss.How much of this loss may Corbin deduct this year?

The AAA of the S corporation is a corporate-level account.

Mary purchased 40 percent of an S corporation on February 28 of the current year and sells a 20 percent interest on November 30.If the corporation reports $10,000 of income for the year, what income does it report on Mary's Schedule K-1.

What is Alexander's net gain or loss on the liquidation of his 100 percent interest in an S corporation if the corporation distributes the following three assets to him in exchange for his stock: Inventary \ 20,000 \ 13,000 Machines \ 50,000 \ 60,000 Building \ 100,000 \ 75,000 Prior to any distributions, Alexander's basis in his S corporation interest was $160,000.

Limited liability companies are generally taxed as partnerships unless the company elects to be taxed as a corporation.

Walter owns and manages his 50 percent interest in a rental apartment complex.His AGI for the current year is $110,000 excluding his portion of the $70,000 loss from the apartment complex.What is his loss carryover?

Noah, a partner in the LMN Partnership, had a tax basis in his partnership interest of $47,000 when he received a liquidating distribution of $25,000 cash and real property (a Section 1231 asset) with a tax basis of $15,000 to the partnership and a fair market value of $75,000.How much gain or loss does Noah recognize on the distribution and what is his basis in the property received?

An S corporation shareholder can only deduct losses of the S corporation to the extent he or she has positive stock basis.

When does a partner recognize gain on a distribution?

A sole proprietorship must use the cash method of accounting.

A sole proprietorship:

Jose, who is single, is allocated $510,000 of income and $788,000 of deductions from KYX General Partnership resulting in a $278,000 loss allocated to him for 2019.Jose's basis in the partnership is $300,000.How much of this loss must Jose carry forward to 2020?

The limited liability partnership form of business offers partners protection from all partnership debts.

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000.What is Logan's recognized gain on this distribution?

Greg and Samantha plan to establish a business in which they will both materially participate.They are both in the 32% marginal tax bracket.Although they expect the business to be very successful in the long-run, they project losses of approximately $100,000 for each of the first five years.Due to potential environmental concerns, limited liability is very important for the owners.Which form of business entity should they select considering both tax and nontax factors?

Which of the following is not a characteristic of sole proprietorships?

The passive activity loss rules apply