Exam 33: Partnerships and S Corporations

Shelley owns a 25% interest in a qualifying S corporation.Shelley's basis in the stock was $15,000 at the beginning of the year.Shelley made no capital contributions and received no distributions during the year.Shelley loaned the S corporation $20,000 this year.The S corporation incurred a $160,000 ordinary loss this year. a.What are the amounts of Shelley's deduction and carryover of the unused loss for the year? b.What is the amount of Shelley's basis in the stock at the end of year one? c.If the S Corporation earned net income of $200,000 in year two,what is the amount of Shelley's stock basis at the end of year two?

When a partnership interest is sold,ordinary income may result if a partnership has unrealized receivables or inventory items.

Which of the following statements regarding the Sec.754 adjustment is incorrect?

Etta transfers property with an adjusted basis of $60,000 in exchange for a 50% partnership interest.The property is subject to a $70,000 mortgage which the partnership will assume.The partnership has no other liabilities.Etta will recognize a $10,000 gain on the exchange due to the negative basis limitation.

Discuss how the partnership form of organization or the S corporation form may be used to shift income.

The primary purpose of a partnership tax return is to determine the income,deduction,loss and credit items of the partnership and thus the amounts that should be reported by the individual partners.

The partnership's assumption of a liability from a partner is treated as a cash distribution to the partner whose liability is assumed,which decreases his basis in the partnership.

Members of a single family may be counted as one shareholder for S corporation purposes.

Sari transferred an office building with a $500,000 FMV and a $300,000 adjusted basis to the Oak Partnership in exchange for a one-quarter ownership interest.Sari had acquired the building three years earlier and had used it in her sole proprietorship.Sari's holding period for her partnership interest

S corporations are a common form for small businesses because they offer more flexibility than partnerships in terms of ownership structure and allocation of income.

Longhorn Partnership reports the following items at the end of the current year: What is the partnership's ordinary income? Which items are separately stated?

A contribution of services to a partnership will result in recognition of compensation to the contributing partner equal to the fair market value of the services as well as an increase in partnership basis to the extent of the income recognized.

Charlie Company is a partnership with two owners,Charlie and Robert.Each owner has a $20,000 original basis in the entity having contributed cash to the partnership at its formation.In the first year of operations,the partnership reported $50,000 of income which is allocated to each partner equally.The partnership has no liabilities.If Charlie sells his partnership interest to Jody for $55,000,what is the amount of gain or loss on the transaction?

All of the following are separately stated items that pass through from the partnership to the partners except

At the beginning of this year,Edmond and Samuel were equal partners in a partnership that uses the calendar year as its tax year.On October 1,this year,Joan contributed $48,000 cash for a one-third interest in the partnership.The interests of both Edmond and Samuel drop to one-third.The partnership reports a $36,000 ordinary loss for the current tax year ending December 31.The loss allocation to Samuel is (assume the elective proration method with a monthly convention)

Explain the difference between expenses of organizing a partnership and expenses of syndicating a partnership.

Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.

Payton and Eli form the EP Partnership to provide marketing services.They will be equal partners.Payton is contributing property with a fair market value of $350,000 and a basis of $300,000.Eli is contributing property with a fair market value of $200,000 and a $175,000 basis.He will also provide services to the partnership valued at $150,000.Discuss the issues raised by this arrangement and the likely tax treatment of these issues.

What is the effect of a change in a partner's interest in the partnership during the year?

Discuss the concept of partnership guaranteed payments.