Exam 11: Sole Proprietorships and Flow-Through Entities

Briefly explain the difference between the entity and the aggregate concepts as related to partnership taxation.

Clarence receives a liquidating distribution of receivables (fair market value and basis both equal $20,000) and land (fair market value = $25,000 and basis = $18,000) for his partnership interest with a $70,000 basis in a liquidating distribution. What is Clarence's realized and recognized gain or loss on this distribution and his basis in the property received?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Distributions from entity are generally tax-free. (Assume the S corporation shareholder has stock basis and partner has partnership or debt basis.)

The income from a general partnership is passive income to all partners..

A person satisfies material participation requirements only through current activity.

Victoria is a 50 percent partner in VR Partners. Her partnership tax basis is $28,000 on December 31 when she receives a current distribution of property with a partnership tax basis of $25,000 and a fair market value of $46,000. What is Victoria's tax basis in the distributed property?

Manuel purchased a 30% interest in MAC general partnership for $40,000 cash and materially participated in the partnership for the entire year. The partnership had $50,000 in liabilities when Manuel purchased his interest and the liabilities increased $10,000 during the year. If the partnership incurred a $300,000 loss this year, how much of this loss can Manuel deduct?

Jacob is a partner in the JB Partnership with a basis in his partnership interest is $35,000. He receives a nonliquidating distribution of $25,000 cash and real property with a partnership basis of $18,000 and a fair market value of $30,000. How much taxable gain will Jacob recognize on the distribution?

The Clio Corporation, an S corporation, makes a nonliquidating distribution of $10,000 cash and property (fair market value = $10,000; basis = $7,000) to James, a 50 percent shareholder. What are the effects of these distributions on Clio and James's incomes, Clio's AAA account, and James's basis in his stock?

Bill has a $15,000 passive loss, a $12,000 passive gain, $20,000 of active income, and a $14,000 active loss. What is Bill's current year net taxable income or loss?

How does a partner establish that his current activity meets the material participation requirements?

Lopez Corporation, an existing C corporation, wants to make an S election. If it has a June 30 year end, by what date must it make its election to be effective as of July 1, 2019?

Recourse debts can only be satisfied with the property used as collateral.

Klinger's AGI is $130,000 before the loss of $29,000 from a rental complex he owns and in which he actively participates. What is his AGI after this loss?

Jose, who is single, is allocated $510,000 of income and $788,000 of deductions from KYX General Partnership resulting in a $278,000 loss allocated to him for 2018. Jose's basis in the partnership is $300,000. How much of this loss can Jose deduct in 2018?

Walter owns and manages his 50 percent interest in a rental apartment complex. His AGI for the current year is $110,000 excluding his portion of the $70,000 loss from the apartment complex. What is his loss carryover?

Sue is a 50 percent working partner in a partnership. She is guaranteed an annual salary of $60,000. Jim, the other 50 percent partner, is to receive the first $10,000 of partnership profits before the balance is divided equally between them. During the year, the partnership's accounting results were $40,000 of income before any partner allocations. What amount of income will Sue be taxed on?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Owners pay self-employment taxes on income from entity.

Corbin has a $15,000 basis in his 50 percent ownership in an S corporation and loaned the corporation $5,000 last year. The corporation has $30,000 of other debt. This year the corporation reported a $100,000 loss. How much of this loss may Corbin deduct this year?

Noah, a partner in the LMN Partnership, had a tax basis in his partnership interest of $47,000 when he received a liquidating distribution of $25,000 cash and real property (a Section 1231 asset) with a tax basis of $15,000 to the partnership and a fair market value of $75,000. How much gain or loss does Noah recognize on the distribution and what is his basis in the property received?