Question 1

Which of the following statements regarding voluntary revocation of the S election is incorrect?

Accepted Answer

A) In order for the revocation to be effective retroactively to the first day of the tax year,the revocation must be filed by March 15 of the affected year. 
B) All of the shareholders must consent to the revocation. 
C) The corporation cannot reelect S corporation status for five years. 
D) The revocation can provide a specified effective date to occur mid-year,requiring two tax returns to be filed for the year. 
A) In order for the revocation to be effective retroactively to the first day of the tax year,the revocation must be filed by March 15 of the affected year. 
B) All of the shareholders must consent to the revocation. 
C) The corporation cannot reelect S corporation status for five years. 
D) The revocation can provide a specified effective date to occur mid-year,requiring two tax returns to be filed for the year.

Question 2

Clark and Lois formed an equal partnership three years ago.Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV.Three years later the land is sold for $210,000.The tax results to Clark and Lois are

Accepted Answer

A) $25,000 of gain to both Clark and Lois. 
B) $60,000 of gain to both Clark and Lois. 
C) $25,000 of gain to Clark and $70,000 gain to Lois. 
D) $25,000 of gain to Clark and $95,000 gain to Lois. 
A) $25,000 of gain to both Clark and Lois. 
B) $60,000 of gain to both Clark and Lois. 
C) $25,000 of gain to Clark and $70,000 gain to Lois. 
D) $25,000 of gain to Clark and $95,000 gain to Lois.

Question 3

Lance transferred land having a $180,000 FMV and a $105,000 adjusted basis,which is subject to a $150,000 mortgage in exchange for a one-third interest in the Trois Partnership.Lance acquired the land in 2010.The partnership owes no other liabilities.Lance,Rhonda,and Zach share profits and losses equally and each has a one-third interest in partnership capital.The tax effect to Lance is

Accepted Answer

A) no gain or loss recognized. 
B) recognized gain of $45,000 on the transfer. 
C) recognized gain of $75,000 on the transfer. 
D) recognized loss of $45,000 on the transfer. 
A) no gain or loss recognized. 
B) recognized gain of $45,000 on the transfer. 
C) recognized gain of $75,000 on the transfer. 
D) recognized loss of $45,000 on the transfer.

Question 4

Which of the following characteristics can disqualify a corporation from S corporation status?

Accepted Answer

A) A corporation has nonresident aliens as shareholders. 
B) One of the corporation's shareholders is an estate. 
C) A corporation has 101 shareholders including a husband and wife. 
D) A corporation has voting and nonvoting stock,but both types of stock confer identical rights to distribution and liquidation proceeds. 
A) A corporation has nonresident aliens as shareholders. 
B) One of the corporation's shareholders is an estate. 
C) A corporation has 101 shareholders including a husband and wife. 
D) A corporation has voting and nonvoting stock,but both types of stock confer identical rights to distribution and liquidation proceeds.

Question 5

An S corporation distributes land to its shareholders.The land has a $60,000 basis and a $90,000 FMV.The basis of the land to the shareholder is

Accepted Answer

A) $0. 
B) $30,000. 
C) $60,000. 
D) $90,000. 
A) $0. 
B) $30,000. 
C) $60,000. 
D) $90,000.

Question 6

Hildi and Frank have decided to form an interior design partnership.Since Hildi will spend twice as much time as Frank in the business,Hildi would like the partnership agreement to provide for a fixed minimum monthly income.Hildi and Frank expect the partnership to show a loss in the first year of operations.Discuss the issues raised by this arrangement and the likely tax treatment of these issues.

Accepted Answer

The required minimum payments to Hildi a

Question 7

Stephanie owns a 25% interest in a qualifying S corporation.Stephanie's basis in the stock was $40,000 at the beginning of the year.Stephanie made no capital contributions and received no distributions during the year.Stephanie loaned the S corporation $10,000 this year.The S corporation incurred a $240,000 ordinary loss this year.Stephanie's deduction and carryover of the unused loss are

Accepted Answer

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

Question 8

The transfer of property to a partnership in exchange for a partnership interest will generally be a nontaxable event.

Accepted Answer

A) True 
 B)False

Question 9

An S corporation distributes land with a basis of $60,000 and a FMV of $90,000 to its shareholder.The tax results of the distribution will be

Accepted Answer

A) no gain to the corporation or to the shareholder. 
B) $30,000 of gain recognized by the S corporation and no pass-through to the shareholder. 
C) no gain recognized by the corporation but $30,000 of gain recognized by the shareholder. 
D) $30,000 of gain recognized by the S corporation which is passed through to the shareholder. 
A) no gain to the corporation or to the shareholder. 
B) $30,000 of gain recognized by the S corporation and no pass-through to the shareholder. 
C) no gain recognized by the corporation but $30,000 of gain recognized by the shareholder. 
D) $30,000 of gain recognized by the S corporation which is passed through to the shareholder.

Question 10

A partnership sells an asset for a gain.The asset had been transferred to the partnership two years ago by Partner J in exchange for a partnership interest.The asset was worth substantially more than its cost as of the transfer date.The partnership gain will be allocated to all of the partners in accordance with their profit and loss sharing ratios.

Accepted Answer

A) True 
 B)False

Question 11

Assuming extensions are not filed,tax returns for calendar-year S corporations and partnerships are both due on April 15.

Accepted Answer

A) True 
 B)False

Question 12

Ordinary losses and separately stated deduction and loss items that exceed a partner's basis carry over indefinitely until the partner has a positive partnership basis.

Accepted Answer

A) True 
 B)False

Question 13

Minna is a 50% owner of a calendar-year S corporation.During the current year,the S corporation had ordinary income of $400,000,short-term capital gain of $150,000 and a charitable contribution of $30,000.What does Minna report for the year from the S corporation?

Accepted Answer

Minna has $200,000 ordinary in

Question 14

All of the following are requirements to qualify as an S corporation with the exception of

Accepted Answer

A) the corporation must be a domestic corporation. 
B) the corporation may issue only one class of stock (disregarding voting rights). 
C) the corporation may not have more than 100 shareholders. 
D) the corporation shareholders may consist of only individuals,estates,trusts,and partnerships. 
A) the corporation must be a domestic corporation. 
B) the corporation may issue only one class of stock (disregarding voting rights). 
C) the corporation may not have more than 100 shareholders. 
D) the corporation shareholders may consist of only individuals,estates,trusts,and partnerships.

Question 15

Hunter contributes property having a $75,000 FMV and a $65,000 adjusted basis which is subject to a $36,000 mortgage in exchange for a one-fourth interest in the ABC Partnership.The partnership owes no other debts,but does assume this mortgage.Profits and losses are shared equally and each partner has a one-fourth interest in partnership capital.Hunter's basis in the partnership is

Accepted Answer

A) $38,000. 
B) $48,000. 
C) $74,000. 
D) $84,000. 
A) $38,000. 
B) $48,000. 
C) $74,000. 
D) $84,000.

Question 16

Emma contributes property having a $24,000 FMV and a $15,000 adjusted basis and also renders legal services valued at $22,000 in exchange for a 30% interest in the capital and profits of the ABC partnership.The tax results to Emma will be

Accepted Answer

A) no income is recognized and a partnership basis of $37,000. 
B) ordinary income of $22,000 and a partnership basis of $37,000. 
C) ordinary income of $22,000 and a partnership basis of $46,000. 
D) no income is recognized and a partnership basis of $46,000. 
A) no income is recognized and a partnership basis of $37,000. 
B) ordinary income of $22,000 and a partnership basis of $37,000. 
C) ordinary income of $22,000 and a partnership basis of $46,000. 
D) no income is recognized and a partnership basis of $46,000.

Question 17

Under the "check-the-box" Treasury Regulations,an LLC with more than one member is treated as a partnership unless the LLC affirmatively elects to be classified as a corporation.

Accepted Answer

A) True 
 B)False

Question 18

If a partner contributes inventory to the partnership in exchange for a partnership interest,the holding period for the partnership interest begins on the date the inventory was acquired by the transferor partner.

Accepted Answer

A) True 
 B)False

Question 19

Hal transferred land having a $160,000 FMV and a $75,000 adjusted basis which is subject to a $150,000 mortgage in exchange for a one-third interest in the HEF Partnership.Hal acquired the land ten years ago.The partnership owes no other liabilities.Hal,Ellen,and Felix share profits and losses equally and each has a one-third interest in partnership capital.Hal's basis in the one-third partnership interest is

Accepted Answer

A) $0. 
B) ($25,000). 
C) $75,000. 
D) $85,000. 
A) $0. 
B) ($25,000). 
C) $75,000. 
D) $85,000.

Question 20

Jamahl has a 65% interest in a partnership.Jamahl sells land to the partnership for $70,000.Prior to the sale,the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl.Due to the sale,Jamahl will recognize

Accepted Answer

A) a gain of $20,000. 
B) a loss of $20,000. 
C) $0,but he will have a carryover loss of $20,000. 
D) $0,and he will not have any carryover loss. 
A) a gain of $20,000. 
B) a loss of $20,000. 
C) $0,but he will have a carryover loss of $20,000. 
D) $0,and he will not have any carryover loss.

Exam 33: Partnerships and S Corporations

Which of the following statements regarding voluntary revocation of the S election is incorrect?

Clark and Lois formed an equal partnership three years ago.Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV.Three years later the land is sold for $210,000.The tax results to Clark and Lois are

Which of the following characteristics can disqualify a corporation from S corporation status?

An S corporation distributes land to its shareholders.The land has a $60,000 basis and a $90,000 FMV.The basis of the land to the shareholder is

The transfer of property to a partnership in exchange for a partnership interest will generally be a nontaxable event.

An S corporation distributes land with a basis of $60,000 and a FMV of $90,000 to its shareholder.The tax results of the distribution will be

Assuming extensions are not filed,tax returns for calendar-year S corporations and partnerships are both due on April 15.

Ordinary losses and separately stated deduction and loss items that exceed a partner's basis carry over indefinitely until the partner has a positive partnership basis.

Minna is a 50% owner of a calendar-year S corporation.During the current year,the S corporation had ordinary income of $400,000,short-term capital gain of $150,000 and a charitable contribution of $30,000.What does Minna report for the year from the S corporation?

All of the following are requirements to qualify as an S corporation with the exception of

Emma contributes property having a $24,000 FMV and a $15,000 adjusted basis and also renders legal services valued at $22,000 in exchange for a 30% interest in the capital and profits of the ABC partnership.The tax results to Emma will be

Under the "check-the-box" Treasury Regulations,an LLC with more than one member is treated as a partnership unless the LLC affirmatively elects to be classified as a corporation.

If a partner contributes inventory to the partnership in exchange for a partnership interest,the holding period for the partnership interest begins on the date the inventory was acquired by the transferor partner.

Jamahl has a 65% interest in a partnership.Jamahl sells land to the partnership for $70,000.Prior to the sale,the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl.Due to the sale,Jamahl will recognize

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