Question 1

An S corporation may not have more than 75 shareholders.

Accepted Answer

A) True 
 B)False

Question 2

All costs of organizing a partnership can be deducted in the year in which the partnership begins business.

Accepted Answer

A) True 
 B)False

Question 3

A CPA firm,operating as a partnership,can become an electing large partnership as long as it has at least 100 partners and files the appropriate election.

Accepted Answer

A) True 
 B)False

Question 4

Chen contributes a building worth $160,000 (adjusted basis $180,000)and $40,000 in services to a partnership for a partnership interest.Chen's basis in the partnership interest is

Accepted Answer

A) $160,000. 
B) $180,000. 
C) $200,000. 
D) $220,000. 
A) $160,000. 
B) $180,000. 
C) $200,000. 
D) $220,000.

Question 5

John contributes land having $110,000 FMV and a $90,000 adjusted basis which is subject to a $60,000 mortgage in exchange for a one-third interest in the AJK Partnership.The partnership owes no other liabilities.After the contribution,Abby,John,and Kent share profits and losses equally and each has a one-third interest in the partnership capital.John's basis in the partnership interest is

Accepted Answer

A) $50,000. 
B) $90,000. 
C) $110,000. 
D) $150,000. 
A) $50,000. 
B) $90,000. 
C) $110,000. 
D) $150,000.

Question 6

Mia is a 50% partner in a partnership with a beginning of the year adjusted basis in her partnership interest of $50,000.For the current year,no distributions are made to partners,and there is no change in partnership liabilities.The partnership incurred a $140,000 ordinary loss for the year.How does Mia treat her loss in excess of basis?

Accepted Answer

A) She will recognize $3,000 this year and carry forward the balance. 
B) She will first carry back the excess loss for two years and then carry forward the balance up to 20 years. 
C) She will carry over the excess loss indefinitely until a subsequent year when she again has a positive basis in her partnership interest. 
D) She will first carry back the excess loss three years and then carry forward the balance up to five years. 
A) She will recognize $3,000 this year and carry forward the balance. 
B) She will first carry back the excess loss for two years and then carry forward the balance up to 20 years. 
C) She will carry over the excess loss indefinitely until a subsequent year when she again has a positive basis in her partnership interest. 
D) She will first carry back the excess loss three years and then carry forward the balance up to five years.

Question 7

All of the following statements are true with regard to the formation of a partnership except

Accepted Answer

A) the partnership's basis in the transferred property carries over from the transferor partners. 
B) with regard to capital assets and 1231 assets,the partnership's holding period for the transferred property includes the contributing partner's holding period. 
C) the nonrecognition rules apply to both property and services contributed to a partnership. 
D) a transfer of property in exchange for a partnership interest causes nonrecognition of gain or loss treatment. 
A) the partnership's basis in the transferred property carries over from the transferor partners. 
B) with regard to capital assets and 1231 assets,the partnership's holding period for the transferred property includes the contributing partner's holding period. 
C) the nonrecognition rules apply to both property and services contributed to a partnership. 
D) a transfer of property in exchange for a partnership interest causes nonrecognition of gain or loss treatment.

Question 8

Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?

Accepted Answer

A) land 
B) marketable securities 
C) inventory 
D) buildings which have been placed in service after 1986 
A) land 
B) marketable securities 
C) inventory 
D) buildings which have been placed in service after 1986

Question 9

Marisa has a 75% interest in the MM Partnership.She sells the partnership a building used in her business for $150,000.Her adjusted basis of the building was $120,000.Marisa had used straight-line depreciation.The partnership will use the building for its offices.What are the tax consequences to Marisa of this transaction?

Accepted Answer

Amount realized $150,000 less $120,000 a

Question 10

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?

Accepted Answer

A) A long-term capital gain taxed at the 15%/20% capital gains rate.If the corporation owns collectibles,gain attributable to those assets will be taxed at the 28% long-term capital gain rate. 
B) Ordinary income to the extent of the shareholder's share of the business's unrealized receivables and appreciation on inventory,with the balance taxed at the 15%/20% capital gain rate. 
C) The portion of the gain attributable to unrecaptured Sec.1250 gain taxed at 25%,with the balance taxed at the 15%/20% capital gain rate. 
D) Both B and C apply to the gain from the sale of S corporation stock. 
A) A long-term capital gain taxed at the 15%/20% capital gains rate.If the corporation owns collectibles,gain attributable to those assets will be taxed at the 28% long-term capital gain rate. 
B) Ordinary income to the extent of the shareholder's share of the business's unrealized receivables and appreciation on inventory,with the balance taxed at the 15%/20% capital gain rate. 
C) The portion of the gain attributable to unrecaptured Sec.1250 gain taxed at 25%,with the balance taxed at the 15%/20% capital gain rate. 
D) Both B and C apply to the gain from the sale of S corporation stock.

Question 11

Which of the following statements is correct,assuming that an extension is not requested?

Accepted Answer

A) A partnership must file Form 1065 no later than the 15th day of the third month after the close of the partnership's tax year. 
B) A partnership must file Form 1120 no later than the 15th day of the fourth month after the close of the partnership's tax year. 
C) A partnership must file Form 1065 no later than the 15th day of the fourth month after the close of the partnership's tax year. 
D) Partnerships must file Schedule K-1 to show how income is allocated to partners no later than the 15th day after the close of the partnership's tax year. 
A) A partnership must file Form 1065 no later than the 15th day of the third month after the close of the partnership's tax year. 
B) A partnership must file Form 1120 no later than the 15th day of the fourth month after the close of the partnership's tax year. 
C) A partnership must file Form 1065 no later than the 15th day of the fourth month after the close of the partnership's tax year. 
D) Partnerships must file Schedule K-1 to show how income is allocated to partners no later than the 15th day after the close of the partnership's tax year.

Question 12

A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.

Accepted Answer

A) True 
 B)False

Question 13

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)

Accepted Answer

A) $24,000. 
B) $12,000. 
C) $0. 
D) $8,000. 
A) $24,000. 
B) $12,000. 
C) $0. 
D) $8,000.

Question 14

The AAA Partnership makes an election to be an Electing Large Partnership.The partnership reports the following activities:
   What are the amounts reported by AAA to the partners on Schedule K-1 for inclusion on their individual tax returns?

Accepted Answer

The net Sec 1231 gain of $75,000 is trea

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

S status can be elected if 50% of all shareholders consent to the S corporation election on the date of the S corporation election.

Accepted Answer

A) True 
 B)False

Question 17

Joy is a material participant in a partnership.Her basis in her partnership interest is $250,000.Due to a major expansion,the partnership will generate a significant loss this year,and Joy's share is expected to be $300,000.The partners expect the partnership to report a large profit next year.Joy is in the top tax bracket this year,and she expects to be in a lower tax bracket next year.Due to her higher marginal tax rate this year,Joy would like to deduct her full share of the partnership loss this year.What strategies can she employ before year-end to assure full deduction of this year's loss?

Accepted Answer

A) As a material participant,Joy will be entitled to deduct her full share of the partnership loss this year. 
B) Joy can make a loan to the partnership before year-end. 
C) Joy can contribute capital to the partnership before year-end. 
D) Either Response B or Response C will allow Joy to deduct her full share of the loss. 
A) As a material participant,Joy will be entitled to deduct her full share of the partnership loss this year. 
B) Joy can make a loan to the partnership before year-end. 
C) Joy can contribute capital to the partnership before year-end. 
D) Either Response B or Response C will allow Joy to deduct her full share of the loss.

Question 18

Ezinne transfers land with an adjusted basis of $50,000 and a FMV of $95,000 to a new business in exchange for a 50% ownership interest.The land is subject to a $60,000 mortgage which the business will assume.The business has no other liabilities outstanding.Indicate the amount of gain recognized by Ezinne due to this exchange if the building is (1)a corporation and (2)a partnership.Assume Sec.351 is satisfied in the case of the corporation and Sec.721 is satisfied in the case of the partnership.

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 19

Oliver receives a nonliquidating distribution of land having a $25,000 adjusted basis and a $32,000 FMV from the OK Partnership.At the time of the distribution,Oliver's basis in his partnership interest is $30,000.
a.What is the amount of recognized gain or loss on the distribution?
b.What is Oliver's basis in his partnership interest following the distribution?
c.What is Oliver's basis in the land?

Accepted Answer

a.No gain or loss is recognize

Question 20

Tonya is the 100% shareholder of a corporation established five years ago.It has always been an S corporation.After adjustment for this year's corporate income,but before taking distributions into account,Tonya has a $50,000 stock basis.The corporation pays Tonya a $60,000 cash distribution.As a result of this distribution,Tonya will have an ending stock basis and recognized income of

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Exam 33: Partnerships and S Corporations

An S corporation may not have more than 75 shareholders.

All costs of organizing a partnership can be deducted in the year in which the partnership begins business.

A CPA firm,operating as a partnership,can become an electing large partnership as long as it has at least 100 partners and files the appropriate election.

Chen contributes a building worth $160,000 (adjusted basis $180,000)and $40,000 in services to a partnership for a partnership interest.Chen's basis in the partnership interest is

All of the following statements are true with regard to the formation of a partnership except

Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?

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?

Which of the following statements is correct,assuming that an extension is not requested?

A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.

The AAA Partnership makes an election to be an Electing Large Partnership.The partnership reports the following activities: What are the amounts reported by AAA to the partners on Schedule K-1 for inclusion on their individual tax returns?

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.

S status can be elected if 50% of all shareholders consent to the S corporation election on the date of the S corporation election.

Tax Research

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