Question 1

Eva is the sole shareholder of an S corporation.Eva gifts half of her S corporation stock to Adam,her newborn son.The S corporation is a highly profitable manufacturing company.The pass-through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.

Accepted Answer

A) True 
 B)False

Question 2

Mia is a 50% partner in a partnership with a beginning of the year adjusted basis in her partnership interest of $50,000.For the current year,no distributions are made to partners,and there is no change in partnership liabilities.The partnership incurred a $140,000 ordinary loss for the year.How does Mia treat her loss in excess of basis?

Accepted Answer

A)  She will recognize $3,000 this year and carry forward the balance. 
B)  She will first carry back the excess loss for two years and then carry forward the balance up to 20 years. 
C)  She will carry over the excess loss indefinitely until a subsequent year when she again has a positive basis in her partnership interest. 
D)  She will first carry back the excess loss three years and then carry forward the balance up to five years.

Question 3

How does an electing large partnership differ from a regular partnership?

Accepted Answer

A)  In the determination of separately stated items of partnership income, gain, loss, or deduction. 
B)  An electing large partnership terminates when the partners cease to conduct any business, financial operation, or venture. 
C)  An electing large partnership must provide a Schedule K-1 to its partners. 
D)  There are no differences in the reporting of income, gain, loss, deduction or credit between a partnership and an electing large partnership.

Question 4

A shareholder sells his S corporation stock and realizes a $500,000 gain.The stock had been held five years.Which of the following statements most completely describes the character of the gain?

Accepted Answer

A)  A long-term capital gain taxed at the 15%/20% capital gains rate. If the corporation owns collectibles, gain attributable to those assets will be taxed at the 28% long-term capital gain rate. 
B)  Ordinary income to the extent of the shareholder's share of the business's unrealized receivables and appreciation on inventory, with the balance taxed at the 15%/20% capital gain rate. 
C)  The portion of the gain attributable to unrecaptured Sec. 1250 gain taxed at 25%, with the balance taxed at the 15%/20% capital gain rate. 
D)  Both B and C apply to the gain from the sale of S corporation stock.

Question 5

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 6

Jamahl has a 65% interest in a partnership.Jamahl sells land to the 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.Due to the sale,Jamahl will recognize

Accepted Answer

A)  a gain of $20,000. 
B)  a loss of $20,000. 
C)  $0, but he will have a carryover loss of $20,000. 
D)  $0, and he will not have any carryover loss.

Question 7

S status can be elected if 50% of all shareholders consent to the S corporation election on the date of the S corporation election.

Accepted Answer

A) True 
 B)False

Question 8

Kuda exchanges property with a FMV of $630,000 and an adjusted basis of $450,000 in exchange for a one-third interest in a partnership.The property is subject to a mortgage with a principal balance of $300,000 which the partnership assumes.As a result of Kuda joining the partnership,Alejandro,a pre-existing partner,now has a one-third interest in the partnership.Alejandro will adjust his basis to

Accepted Answer

A)  increase it by $150,000. 
B)  increase it by $210,000. 
C)  decrease by $100,000. 
D)  increase it by $100,000.

Question 9

Torrie and Laura form a partnership in which they are equal partners.Torrie contributes $100,000 cash.Laura contributes $40,000 cash and a painting worth $60,000.Laura purchased the painting three years ago for $45,000.In two years the partnership sells the painting for $80,000.
a.What is the partnership's basis in the painting?
b. When the painting is sold,how much gain is allocated to each partner?

Accepted Answer

The answer of Torrie and Laura form a partnership in...

Question 10

An S corporation distributes land to its shareholders.The land has a $60,000 basis and a $90,000 FMV.The basis of the land to the shareholder is

Accepted Answer

A)  $0. 
B)  $30,000. 
C)  $60,000. 
D)  $90,000.

Question 11

All of the following could 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 12

A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.

Accepted Answer

A) True 
 B)False

Question 13

John contributes land having $110,000 FMV and a $90,000 adjusted basis which is subject to a $60,000 mortgage in exchange for a one-third interest in the AJK Partnership.The partnership owes no other liabilities.After the contribution,Abby,John,and Kent share profits and losses equally and each has a one-third interest in the partnership capital.John's basis in the partnership interest is

Accepted Answer

A)  $50,000. 
B)  $90,000. 
C)  $110,000. 
D)  $150,000.

Question 14

Richard has a 50% interest in a partnership,and he materially participates in the partnership's business.Richard's adjusted basis in the partnership was $60,000 at the beginning of the year,including his share of partnership liabilities.There were no distributions to Richard during the year.During the current year,the partnership borrowed $160,000 from a local bank to purchase equipment needed in the business.All of the partners are personally liable for all partnership debts.The partnership incurred a $320,000 loss this year.What amount can Richard claim as a loss from the partnership on his individual tax return this year?

Accepted Answer

A)  $60,000 
B)  $80,000 
C)  $140,000 
D)  $160,000

Question 15

On January 1 of this year (assume not a leap year),Anne bought 50% of a calendar-year S corporation.Anne purchased the remaining 50% on July 1 (day 181 of the year).Anne's adjusted basis in the stock is $277,000 before any basis adjustments are taken into account.For this year,the corporation had a net operating loss of $365,000.What is the amount of the corporation's loss that Anne can deduct on her current individual income tax return?

Accepted Answer

A)  $0 
B)  $274,500 
C)  $273,500 
D)  $365,000

Question 16

All of the following are requirements to qualify as an S corporation with the exception of

Accepted Answer

A)  the corporation must be a domestic corporation. 
B)  the corporation may issue only one class of stock (disregarding voting rights). 
C)  the corporation may not have more than 100 shareholders. 
D)  the corporation shareholders may consist of only individuals, estates, trusts, and partnerships.

Question 17

Marisa has a 75% interest in the MM Partnership.She sells the partnership a building used in her business for $150,000.Her adjusted basis of the building was $120,000.Marisa had used straight-line depreciation.The partnership will use the building for its offices.What are the tax consequences to Marisa of this transaction?

Accepted Answer

The answer of Marisa has a 75% interest in the...

Question 18

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 19

Worthy Corporation elected to be taxed as an S corporation on January 1,of last year,effective last year.It had previously been a C corporation.On the effective date of the S election,Worthy had land with a $70,000 basis and a $210,000 FMV.No net unrealized losses exist on the date of the S corporation election.The land is sold this year for $250,000.The tax result of the sale by Worthy is

Accepted Answer

A)  no gain or loss recognized. 
B)  a gain of $180,000, none of which is subject to the built-in gains tax. 
C)  a gain of $180,000, all of which is subject to the built-in gains tax. 
D)  a gain of $140,000 subject to the built-in gains tax and passes though to shareholders, plus a $40,000 gain subject to the regular S corporation pass-through rules.

Question 20

Discuss how the partnership form of organization or the S corporation form may be used to shift income.

Accepted Answer

The answer of Discuss how the partnership form of organization...

Exam 17: Partnerships and S Corporations

Eva is the sole shareholder of an S corporation.Eva gifts half of her S corporation stock to Adam,her newborn son.The S corporation is a highly profitable manufacturing company.The pass-through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.

How does an electing large partnership differ from a regular partnership?

A shareholder sells his S corporation stock and realizes a $500,000 gain.The stock had been held five years.Which of the following statements most completely describes the character of the gain?

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 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.Due to the sale,Jamahl will recognize

S status can be elected if 50% of all shareholders consent to the S corporation election on the date of the S corporation election.

An S corporation distributes land to its shareholders.The land has a $60,000 basis and a $90,000 FMV.The basis of the land to the shareholder is

All of the following could file partnership tax returns except

A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.

All of the following are requirements to qualify as an S corporation with the exception of

Discuss how the partnership form of organization or the S corporation form may be used to shift income.