Question 1

Priya is a partner in a partnership.The partnership has incurred a loss for the year.Priya's ability to recognize the loss will be tested in the following order:

Accepted Answer

A) (1)basis limitations,(2)excess business loss limitations,(3)passive loss limitations. 
B) (1)basis limitations,(2)passive loss limitations,(3)excess business loss limitations. 
C) (1)passive loss limitations,(2)basis limitations,(3)excess business loss limitations. 
D) (1)excess business loss limitations,(2)basis limitations,(3)passive loss limitations.

Question 2

S corporations and their shareholders are subject to the rules regarding

Accepted Answer

A) the qualified business income deduction. 
B) the limitation on net business interest. 
C) the limitation on excess business losses. 
D) all of the above.

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

A partner in a partnership will deduct her qualified business income deduction as a deduction for AGI.

Accepted Answer

A) True 
 B)False

Question 5

A new corporation is formed on January 2,2019.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

Accepted Answer

A) the original due date for the 2019 tax return. 
B) the properly extended due date for the 2019 tax return. 
C) January 2,2019. 
D) March 15,2019.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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?

Accepted Answer

A) $50,000 capital gain 
B) $60,000 capital gain 
C) $10,000 ordinary income and $50,000 capital gain 
D) $10,000 ordinary income and $60,000 capital gain

Question 9

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

Accepted Answer

A) $25,000 of gain to both Clark and Lois. 
B) $60,000 of gain to both Clark and Lois. 
C) $25,000 of gain to Clark and $70,000 gain to Lois. 
D) $25,000 of gain to Clark and $95,000 gain to Lois.

Question 10

Edith contributes land having $100,000 FMV and a $85,000 adjusted basis,which is subject to a $66,000 mortgage in exchange for a one-third interest in the EHK Partnership.The partnership owes no other liabilities.After the contribution,Kate,Edith,and Helen share profits and losses equally and each has a one-third interest in the partnership capital.Assume that Kate has a basis in her partnership interest of $50,000 before Edith's contribution to the partnership.The effect of Edith's contribution on partner Kate's basis is to

Accepted Answer

A) decrease Kate's basis to $28,000. 
B) increase Kate's basis to $72,000. 
C) increase Kate's basis to $77,000. 
D) no effect on Kate's basis.

Question 11

If a partner contributes property to a partnership,and that property is subject to a liability,the noncontributing partners increase the basis of their partnership interests by their share of the partnership liabilities that were transferred to the partnership.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

A) Patrick will be required to recognize a $3,000 gain due to the negative basis rules and will have a basis in his partnership interest of zero. 
B) Patrick will not be required to recognize a gain on his return and will have a basis in his partnership interest of negative $3,000. 
C) Patrick will be required to recognize a $21,000 gain due to the negative basis rules and will have a basis in his partnership interest of zero. 
D) Patrick will be required to recognize a $14,000 gain due to the negative basis rules and will have a basis in his partnership interest of zero.

Question 13

Treasury Regulations require maintenance of partnership capital accounts under book accounting principles rather than tax accounting principles.The capital accounts will be maintained following GAAP accounting standards.

Accepted Answer

A) True 
 B)False

Question 14

The primary purpose of a partnership tax return is to determine the income,deduction,loss and credit items of the partnership and thus the amounts that should be reported by the individual partners.

Accepted Answer

A) True 
 B)False

Question 15

Stephanie owns a 25% interest in a qualifying S corporation.Stephanie's basis in the stock was $40,000 at the beginning of the year.Stephanie made no capital contributions and received no distributions during the year.Stephanie loaned the S corporation $10,000 this year.The S corporation incurred a $240,000 ordinary loss this year.Stephanie's deduction and carryover of the unused loss are

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline & \text { Carryover } \
\text { Deductible Loss } & \text { Loss } \
\hline \$ 30,000 & \$ 30,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline & \text { Carryover } \
 \text { Deductible Loss } & \text { Loss } \
\hline \$ 40,000 & \$ 20,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline & \text { Carryover } \
 \text { Deductible Loss } & \text { Loss } \
\hline \$ 50,000 & \$ 10,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline & \text { Carryover } \
 \text { Deductible Loss } & \text { Loss } \
\hline \$ 60,000 & \$ 0 \
\hline
\end{array}$$

Question 16

Which of the following statements is correct,assuming that an extension is not requested?

Accepted Answer

A) A partnership must file Form 1065 no later than the 15th day of the third month after the close of the partnership's tax year. 
B) A partnership must file Form 1120 no later than the 15th day of the fourth month after the close of the partnership's tax year. 
C) A partnership must file Form 1065 no later than the 15th day of the fourth month after the close of the partnership's tax year. 
D) Partnerships must file Schedule K-1 to show how income is allocated to partners no later than the 15th day after the close of the partnership's tax year.

Question 17

David and Joycelyn form an equal partnership in the current year.No special allocation is provided for in the partnership agreement.During the year David contributes land having a $90,000 basis and a $100,000 FMV in exchange for the initial partnership interest.In addition,the partnership earns $50,000 of ordinary income while partnership liabilities increase from zero to $30,000 by the end of the tax year.The partnership earns $20,000 of tax-exempt interest during the year.David's basis at the end of the current year is

Accepted Answer

A) $115,000. 
B) $125,000. 
C) $130,000. 
D) $140,000.

Question 18

Tony 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,Tony has a $50,000 stock basis.The corporation pays Tony a $40,000 cash distribution.As a result of this distribution,Tony will have an ending stock basis and recognized income of

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Income } & \
\text { recognized } & \text { Stock basis } \
\hline \$ 0 & \$ 10,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Income } & \
\text { recognized } & \text { Stock basis } \
\hline \$ 40,000 & \$ 50,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Income } & \
\text { recognized } & \text { Stock basis } \
\hline \$ 0 & \$ 40,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Income } & \
\text { recognized } & \text { Stock basis } \
\hline \$ 40,000 & \$ 10,000 \
\hline
\end{array}$$

Question 19

Jamahl has a 65% interest in a partnership.Jamahl sells land to the JK partnership for $70,000.Prior to the sale,the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl.Two years later,the partnership sells the land for $123,000.Due to the sale,the partnership will recognize

Accepted Answer

A) a gain of $13,000. 
B) a loss of $53,000. 
C) a gain of $33,000. 
D) a loss of $20,000.

Question 20

JK Partnership earns $30 million of non-interest ordinary income.The partnership incurs $12 million of interest expense.Jen and Kai are each 50% partners,sharing all partnership items equally.Assume no taxpayer qualifies for the small business exception.The partnership's ordinary income,after taking interest expense into account,will be

Accepted Answer

A) $18 million. 
B) $21 million. 
C) $24 million. 
D) $30 million.

Exam 33: Partnerships and S Corporations

Priya is a partner in a partnership.The partnership has incurred a loss for the year.Priya's ability to recognize the loss will be tested in the following order:

S corporations and their shareholders are subject to the rules regarding

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 partner in a partnership will deduct her qualified business income deduction as a deduction for AGI.

A new corporation is formed on January 2,2019.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

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

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

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

If a partner contributes property to a partnership,and that property is subject to a liability,the noncontributing partners increase the basis of their partnership interests by their share of the partnership liabilities that were transferred to the partnership.

Treasury Regulations require maintenance of partnership capital accounts under book accounting principles rather than tax accounting principles.The capital accounts will be maintained following GAAP accounting standards.

The primary purpose of a partnership tax return is to determine the income,deduction,loss and credit items of the partnership and thus the amounts that should be reported by the individual partners.

Which of the following statements is correct,assuming that an extension is not requested?

Jamahl has a 65% interest in a partnership.Jamahl sells land to the JK partnership for $70,000.Prior to the sale,the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl.Two years later,the partnership sells the land for $123,000.Due to the sale,the partnership will recognize