Exam 17: Partnerships and S Corporations

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

On July 1,Alexandra contributes business equipment (which she had purchased two years ago) having a $45,000 FMV and a $40,000 adjusted basis to the AX Partnership in exchange for a 25% interest in the capital and profits.The basis of Alexandra's partnership interest is

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

The corporate built-in gains tax does not apply to a corporation that has always been taxed as an S corporation.

Patrick acquired a 50% interest in a partnership by contributing property that had an adjusted basis of $8,000 and a fair market value of $29,000.The property was subject to a liability of $22,000,which the partnership assumed for legitimate business purposes.Which of the following statements is correct?

A liquidating distribution is treated as a sale or exchange of a partnership interest.

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

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

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?

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?

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

Brittany receives a nonliquidating distribution of $48,000 cash from her partnership.Brittany's basis in her partnership interest prior to the distribution is $25,000.What are the tax consequences of the distribution?

Although a partner's distributive share of income,deductions,losses,and credits is generally determined by partnership agreement,special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.

Marlena contributes property having a $30,000 FMV and a $27,000 adjusted basis and also renders accounting services valued at $15,000 in exchange for a 30% interest in the capital and profits of the BBB partnership.LeBron contributes a building with a $100,000 FMV,an adjusted basis of $88,000,and subject to a mortgage of $80,000 for a 40% interest in the capital and profits of the BBB partnership.The partnership assumes the mortgage.Ty contributes cash of $60,000 for a 30% interest in the capital and profits of the BBB partnership. a.What is each partner's respective basis in the partnership? b.What are the current income tax consequences to each partner? c. What is the partnership's basis in the assets transferred in by the partners?

Gains on sales or exchanges between a partner and the partnership are treated as ordinary income if the partner owns more than a 50% interest in the capital or profits and the asset that is exchanged is not a capital asset in the transferee's hands.

A nonliquidating distribution of cash or property from the partnership to a partner is generally treated as a tax-free return of capital to the extent of a partner's basis.

Because a partnership is a pass-through entity rather than a taxable entity,partnerships need not file tax returns.

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

When property is contributed to a partnership,the partnership's basis in the property is the same as that of the transferor partner even if gain is recognized on the transfer.

The basis of a partner's interest in a partnership is adjusted to reflect each partner's share of income and deduction items only if a distribution is made to the partners.