Exam 17: Partnerships and S Corporations

New business owners expecting losses in the early years will generally prefer the partnership (or LLC) form of business over the C and S corporation forms.

Etta transfers property with an adjusted basis of $60,000 in exchange for a 50% partnership interest.The property is subject to a $70,000 mortgage which the partnership will assume.The partnership has no other liabilities.Etta will recognize a $10,000 gain on the exchange due to the negative basis limitation.

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

All costs of organizing a partnership can be deducted in the year in which the partnership begins business.

A new corporation is formed on January 2,2017.In order to have the S election effective as of the first day of the first tax year,the Form 2553 must be filed no later than

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.

Empire Corporation has operated as a C corporation for its first three years of existence because one of its shareholders disqualified it from electing S corporation status.That shareholder is now gone,and the remaining shareholders have elected S corporation status effective for the current year.Empire Corporation has one highly appreciated asset that it hopes to sell in the near future.How many years must elapse before the sale in order to avoid the built-in gains tax?

Members of a single family may be counted as one shareholder for S corporation purposes.

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

The expenses associated with promoting and marketing partnership interests can be currently deducted if $5,000 or less.Expenses in excess of $5,000 are amortized over 180 months.

Guaranteed payments are not deductible by the partnership in arriving at partnership ordinary income but are included in the receiving partner's income.

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

If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

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

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?

Dori and Matt will be equal owners of a new business and will be making cash contributions to start up the business.They expect substantial losses in the early years so the business will take out a loan from the bank which Dori and Matt will have to guarantee.For tax purposes,the preferred business form for these early years will be

Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land.The partnership had purchased the land five years ago for $20,000,but it is worth $28,000 at the time of the distribution.Ariel's predistribution basis is $17,000.How much income will Ariel recognize due to the distribution,and what is her basis in the land?

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

Rowan and Sanjay are equal partners in a partnership,which uses the calendar year as its tax year.On September 1,this year,Hailley contributed $60,000 cash for a one-third interest in the partnership.The partnership reports $72,000 of ordinary income for the tax year ending on December 31 of this year.The income allocation to Hailley is (assume the elective proration method with a monthly convention)

In a limited partnership,the limited partners are liable for partnership debts only to the extent of their investment in the partnership plus any amount they commit to contribute to the partnership if called upon.