Exam 17: Partnerships and S Corporations

On July 1,Joseph,a 10% owner,sells his interest in ABC Partnership to Andy,an outsider,for $165,000 cash and the release from $20,000 of partnership liabilities.Joseph's partnership interest at the beginning of the year was $120,000.The partnership earned income through June 30 of $100,000.Joseph's share of partnership liabilities increased by $5,000 from January 1 to June 30.What are the tax consequences to Joseph on the sale of his partnership interest (assume the partnership does not hold any inventory or unrealized receivables)?

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

Elise contributes property having a $60,000 FMV and a $25,000 adjusted basis and also renders accounting services valued at $30,000 in exchange for an 80% interest in the capital and profits of the EEE partnership.Evan contributes a building with a $90,000 FMV,an adjusted basis of $55,000,and subject to a mortgage of $70,000 for a 20% interest in the capital and profits of the EEE partnership.The partnership assumes the mortgage. a.What is each partner's respective basis in the partnership? b.What are the income tax consequences of the contributions? c. What is the partnership's basis in the assets transferred in by Elise and Evan?

George transferred land having a $170,000 FMV and a $60,000 adjusted basis,which is subject to a $150,000 mortgage in exchange for a one-third interest in the GEF Partnership.The partnership owes no other liabilities.George,Elena,and Franz share profits and losses equally and each has a one-third interest in partnership capital.The basis to the partnership of the land transferred by George is

On April 4,2017,Joan contributes business equipment (she had purchased on October 23,2012) having a $45,000 FMV and a $40,000 adjusted basis to the EJK Partnership in exchange for a 25% interest in the capital and profits.The basis of the property and the date the holding period begins for the partnership is

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

Pass-through entities are taxed at only one level-the ownership level.

At the beginning of this year,Thomas and Claire were equal partners in a partnership that uses the calendar year as its tax year.On August 1,this year,Randy and Mike each contributed $50,000 cash for a 1/4 interest in the partnership.The interests of both Thomas and Claire drop to one-fourth.The partnership reports a $30,000 ordinary loss for the current tax year ending December 31.(Use the elective proration method with a monthly convention.) What is the amount of loss allocated to each partner?

An LLC that elects to be taxed like a partnership is also classified as a partnership for legal purposes.

A partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

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?

A partnership sells equipment and recognizes depreciation recapture under Sec.1245.In reporting its results for the year,the partnership will separately state the Sec.1245 depreciation recapture.

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

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.

Lars has a basis in his partnership interest in XXL of $100,000.He sells the partnership interest in XXL for $160,000.XXL is a cash-basis partnership which has accounts receivable with a $30,000 fair market value and a zero adjusted basis.Lars's share of these receivables is $10,000.What is the amount and character of the gain that Lars recognizes on the sale of his partnership interest?

All of the following statements are true with regard to the formation of a partnership except

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

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

Gain is recognized by an S corporation when it distributes appreciated property to its shareholders.

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