Exam 33: Partnerships and S Corporations

Many professional service partnerships have adopted the LLP form primarily because it

A business distributes land to one of its owners.The business purchased the land a few years ago for $15,000,but it is now worth $35,000.Compare the treatment of this distribution when made by a partnership as opposed to an S corporation.Consider the impact on the business and the partner/shareholder and the determination of basis in the property.

In 2017,Phuong transferred land having a $150,000 FMV and a $120,000 adjusted basis,which is subject to a $110,000 mortgage in exchange for a one-third interest in the DSF Partnership.Phuong had purchased the land in 2013,but the mortgage was not received until 2014.The partnership owes no other liabilities.Phuong,Austin,and Alison share profits and losses equally and each has a one-third interest in partnership capital.The partnership's holding period for the land transferred by partner Phuong commences in

Raina owns 100% of Tribo Inc. ,an S corporation.She started the business this year with a $100,000 capital contribution.In addition,the business borrowed $50,000 from the bank which she had to guarantee.Tribo incurred a first year operating loss of $170,000.Raina will deduct an ordinary loss this year of

To receive S corporation treatment,a qualifying shareholder must be an individual,partnership,estate,qualifying trust,or certain kinds of tax-exempt organizations.

Tess buys Harry's partnership interest in Oval Partnership.Oval holds several highly appreciated assets,and this appreciation is reflected in the price Tess paid for the partnership interest.Tess can make a Sec.754 election to increase the basis of her share of partnership assets.

James and Sharon form an equal partnership in the current year.No special allocation is provided for in the partnership agreement.During the year James contributes land having a $80,000 basis and a $100,000 FMV in exchange for the initial partnership interest.In addition,the partnership earns $100,000 of ordinary income while partnership liabilities increase from zero to $60,000 by the end of the tax year.Also,the partnership earns $10,000 of tax-exempt interest during the year and makes charitable contributions of $6,000.James withdraws $30,000 from the partnership. What is James's basis at the end of the current year?

An S corporation can have both voting and nonvoting common stock as long as the shares of stock have identical rights to share in the profits and assets of the corporation.

A shareholder's basis for the S corporation stock is adjusted for ordinary income or loss and separately stated items that flow through to the shareholders as well as for additional capital contributions by shareholders and distributions to shareholders.

The income of a single member LLC is taxed to its owner under the sole proprietorship rules if no election to be taxed as a corporation is made.