Exam 20: Corporations and Partnerships

What causes a partner's basis in a partnership interest to fluctuate?

Regarding the check-the-box Regulations,comment on each of the following: a.An entity is a corporation under state laws b.A limited liability company defaults (no election is made). c.A one-person business defaults (no election is made).

How does the domestic production activities deduction differ for corporations than for individuals?

Sophia and William form the Bobwhite Corporation with the following investments: Basis Fair Market Value From Sophia- Cash $300,000 $300,000 From William- Land 280,000 350,000 ​ Each person is issued one-half of Bobwhite's stock and,in addition,William receives cash of $50,000. ​ a. How much gain,if any,must William recognize and what basis does he have in the Bobwhite stock? b.What is Bobwhite's basis in the land?

In determining which organizational expenditures can be amortized,it is the year incurred (and not paid)that controls if the corporation uses the cash method of accounting.

The taxable income (or loss)of an S corporation is allocated to each shareholder on a per-share and per-day of stock ownership basis.

Is there a logical explanation why S corporations are not allowed a dividends received deduction when computing taxable income?

An S corporation makes a $20,000 cash distribution to a shareholder whose basis in the stock is $19,000.The distribution will result in a $1,000 negative basis in the stock.

For various reasons,Bill would like to incorporate his very successful business.Before doing so,however,he has the following reservations: ∙ Recognizing gain on appreciated business assets. ∙ Avoiding (or minimizing)any future corporate income tax. ∙ Retaining ownership of the building occupied by the business. ​ Suggest a resolution of Bill's concerns.

In order to get the Cardinal Corporation to build a plant in the area,Union County gives it land worth $900,000.The land was purchased by the county many years ago for $50,000. a.How much income,if any,must Cardinal Corporation recognize for receiving the land? b.What basis will Cardinal Corporation have in the land?

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of individuals b.Applies only to the income taxation of C corporations c.Applies to both the income taxation of individuals and of C corporations d.Applies to neither the income taxation of individuals nor of C corporations -Interest on municipal bonds is excluded from gross income.

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of C corporations. b.Applies only to the income taxation of S corporations. c.Applies to both the income taxation of C corporations and S corporations. d.Applies to neither the income taxation of C corporations nor of S corporations. -The corporation's domestic production activities deduction is claimed by the corporation (not the shareholders).

The Schedule M-1 to Form 1120 starts with taxable income and,after making various negative and positive adjustments,ends up with net income per books.

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of individuals b.Applies only to the income taxation of C corporations c.Applies to both the income taxation of individuals and of C corporations d.Applies to neither the income taxation of individuals nor of C corporations -Once taxable income reaches a certain level,the benefits of the lower tax brackets phase out.

Certain small business C corporations are not subject to the alternative minimum tax (AMT).

In some situations,a partnership makes guaranteed payments to one or more of its partners. a.What are these payments? b.What are their tax effects to the partnership? c.What are the tax effects to the partner?

In determining whether an entity is to be recognized as a corporation for Federal income tax purposes,classification under state law is not conclusive.

A partnership's ordinary income or loss is computed without considering any charitable contributions.This item is separately stated and passes through to the individual partners.

In return for a 10% interest in the Sapphire Partnership,Lily transfers cash of $50,000 and land (basis of $200,000;fair market value of $300,000).Lily's basis in her Sapphire Partnership interest is $250,000.

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of C corporations. b.Applies only to the income taxation of S corporations. c.Applies to both the income taxation of C corporations and S corporations. d.Applies to neither the income taxation of C corporations nor of S corporations. -A resident and citizen of Mexico can be a shareholder.