Exam 10: Sole Proprietorships, Partnerships, Llcs, and S Corporations

Funky Chicken is a calendar year general partnership with the following current year information: On January 1 June Cross bought 60% of Funky Chicken for $45,000. She then loaned the partnership $20,000. How much of the operating loss may Cross deduct currently?

Cactus Company is a calendar year S corporation with the following current year information: On January 1, John James bought 50% of Cactus Company stock for $30,000. How much of the operating loss may John deduct on his Form 1040?

Haddie's Hats is a regular corporation. The business must file an income tax return each year to report its taxable income or loss and pay any related taxes.

On January 1, Leon purchased a 10% stock interest in an S corporation for $30,000. He also loaned the S corporation $5,000 in exchange for a written promissory note. The S corporation generated a $330,000 operating loss for the year. Leon deducted his 10% share of the loss, reducing his tax basis in his stock to zero, and his tax basis in the note to $2,000. The following year, the S corporation repaid the note before Leon restored his basis in the note. What are the consequences of the loan repayment to Leon?

Alex is a partner in a calendar year partnership. His partnership Schedule K-1 for the current tax year showed the following: Alex has a $7,000 loss carryforward from the partnership last year, which he could not deduct because of the basis limitation. What is his tax basis in his partnership interest at the end of the current tax year?

XYZ, Inc. wishes to make an election to become an S corporation for federal tax purposes. Which of the following statements regarding the election is false?

Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its partnership interest?

Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally. Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows: What is Clover's share of the partnership's ordinary income and guaranteed payment?

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

On January 1 of this year, Conrad Nelson contributed $15,000 cash in exchange for 50 shares of stock in Sterling Inc., an S corporation. Sterling employs Conrad as its director of marketing. Conrad's current year salary was $70,000 and his pro rata share of Sterling's ordinary business income was $16,800. During the year, Conrad received a $9,000 cash distribution with respect to his Sterling stock. Compute Conrad's basis in his Sterling stock at year end.

During 2015, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

Which of the following statements regarding limited liability companies is false?

Which of the following statements about S corporations is true?

Matthew earned $150,000 in wages during 2015. FICA taxes withheld by his employer would have been $11,475.

Kelly received a $60,000 salary during 2015. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2015 was $118,500. What is the total amount that her employer should have withheld in 2015?

Which of the following statements regarding a sole proprietorship is false?

In applying the basis limitation on the deduction of S corporation losses, which of the following statements is true?