Question 1

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

Accepted Answer

A) a C corporation. 
B) an S corporation. 
C) an LLC,taxed as a partnership. 
D) either an S corporation or an LLC (partnership).The owners will be indifferent between these two forms.

Question 2

Dara,a single taxpayer,is a 50% partner in a CPA partnership.The partnership reports $500,000 of ordinary business income and no separately stated items in 2019.Dara also has $30,000 of taxable interest income and $25,000 of itemized deductions.Dara will be allowed a qualified business income deduction of

Accepted Answer

A) $100,000. 
B) $50,000. 
C) $51,000. 
D) $0.

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

All of the following will file partnership tax returns except

Accepted Answer

A) general partnership. 
B) limited liability partnership. 
C) limited liability company. 
D) single member limited liability company.

Question 5

Limited liability of partners or members is an advantage of all the following with the exception of

Accepted Answer

A) LLP. 
B) LLC. 
C) limited partnerships. 
D) general partnerships.

Question 6

A partnership sells an asset for a gain.The asset had been transferred to the partnership two years ago by Partner J in exchange for a partnership interest.The asset was worth substantially more than its cost as of the transfer date.The partnership gain will be allocated to all of the partners in accordance with their profit and loss sharing ratios.

Accepted Answer

A) True 
 B)False

Question 7

S status can be elected if shareholders holding the majority of the stock consent to the S corporation election on the date of the S corporation election.

Accepted Answer

A) True 
 B)False

Question 8

When an S corporation shareholder sells her stock,she must first recognize ordinary gain to the extent of her share of the unrealized receivables and appreciation on inventory held by the S corporation,with the balance of the gain treated as capital gain.

Accepted Answer

A) True 
 B)False

Question 9

The tax on excess net passive income does not apply to a corporation that has always been taxed as an S corporation.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements regarding the Sec.754 adjustment is incorrect?

Accepted Answer

A) Sec.754 permits a basis adjustment to partnership assets upon the sale of a partnership interest. 
B) Sec.754 permits a basis adjustment to partnership assets upon certain distributions. 
C) The Sec.754 election is made annually by the partnership. 
D) The Sec.754 election is intended to prevent inequities that may occur when the bases of partnership assets are not adjusted.

Question 11

Cal and Ann are a married couple filing a joint return.Ann earns a $700,000 salary as a bank executive.The couple has $150,000 of interest and dividend income.Cal is a 50% partner and material participant in CD Partnership.CD has incurred a $1.5 million ordinary loss in 2019,and Cal's share is $750,000.Cal's basis is large enough to absorb the loss.With respect to the partnership loss,the couple will deduct

Accepted Answer

A) $750,000. 
B) $700,000. 
C) $510,000. 
D) $255,000.

Question 12

The limitation on the deductibility of business interest expense does not apply to taxpayers whose average gross receipts for the three preceding years is less than $26 million in 2019.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following will be separately stated by a partnership reporting its operations for the year to the IRS?

Accepted Answer

A) interest income 
B) Sec.1245 depreciation recapture 
C) bad debt expense 
D) None of the items will be separately stated.

Question 14

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

Accepted Answer

A) $5,000. 
B) $40,000. 
C) $45,000. 
D) None of the above.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

A) $48,000 ordinary income; $25,000 partnership basis 
B) $48,000 nontaxable return of capital,($23,000)partnership basis 
C) $25,000 nontaxable return of capital,capital gain of $23,000,$0 partnership basis 
D) $25,000 nontaxable return of capital,ordinary income of $23,000,$0 partnership basis

Question 17

All the following are types of pass-through entities except

Accepted Answer

A) LLP. 
B) LLC. 
C) C corporations. 
D) S corporations.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The basis of a partnership interest is equal to the sum of money contributed plus the FMV of the property transferred to the partnership.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 33: Partnerships and S Corporations

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.

All of the following will file partnership tax returns except

Limited liability of partners or members is an advantage of all the following with the exception of

S status can be elected if shareholders holding the majority of the stock consent to the S corporation election on the date of the S corporation election.

When an S corporation shareholder sells her stock,she must first recognize ordinary gain to the extent of her share of the unrealized receivables and appreciation on inventory held by the S corporation,with the balance of the gain treated as capital gain.

The tax on excess net passive income does not apply to a corporation that has always been taxed as an S corporation.

Which of the following statements regarding the Sec.754 adjustment is incorrect?

The limitation on the deductibility of business interest expense does not apply to taxpayers whose average gross receipts for the three preceding years is less than $26 million in 2019.

Which of the following will be separately stated by a partnership reporting its operations for the year to the IRS?

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

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.

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?

All the following are types of pass-through entities except

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

The basis of a partnership interest is equal to the sum of money contributed plus the FMV of the property transferred to the partnership.

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.