Exam 17: Partnerships and S Corporations

Thomas and Miles are equal partners in a partnership, which uses the calendar year as its tax year. On September 1, this year, Katie contributed $60,000 cash for a one-third interest in the partnership. The partnership reports a $24,000 ordinary loss for the tax year ending on December 31 of this year. The loss allocation to Katie (new partner)is

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

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 allocated to all of the partners in accordance with their profit and loss sharing ratios.

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.

Ordinary income may result if a partnership has unrealized receivables or inventory items when a partnership interest is sold.

At the beginning of this year, Thomas and Claire were equal partners in a partnership that uses the calendar year as its tax year. On August 1, this year, Randy and Mike each contributed $50,000 cash for a 1/4 interest in the partnership. The interests of both Thomas and Claire drop to one-fourth. The partnership reports a $30,000 ordinary loss for the current tax year ending December 31. (Assume every month has the same number of days.) What is the amount of loss allocated to each partner?

For each of the following independent cases below, indicate whether the entity will be taxed as an S corporation or a C corporation for the respective period. a. Richard Corporation, uses the calendar year as its tax year. It files an S election on March 31, 2014. If no reasonable cause is shown, how will Richard be treated for tax purposes in 2014? b. Shareholders owning more than 50% of the stock of Harper Corporation, a qualifying calendar-year S corporation, consent to a voluntary revocation statement filed by the corporation on March 12, 2014. How will Harper Corporation be treated for tax purposes in 2014? c. Shareholders owning more than 50% of the stock of Hazelwood Corporation, a qualifying calendar-year S corporation, consent to a voluntary revocation statement filed by the corporation on March 12, 2014. The prospective termination date is July 1, 2014. How will Hazelwood Corporation be treated for tax purposes in 2014? d. One of the shareholders of Omni Corporation, a calendar-year S corporation, sells his stock to a Canadian individual on July 8, 2014.

Sari transferred an office building with a $500,000 FMV and a $300,000 adjusted basis to the Oak Partnership in exchange for a one-quarter ownership interest. Sari had acquired the building three years earlier and had used it in her sole proprietorship. Sari's holding period for her partnership interest

Explain the difference between expenses of organizing a partnership and expenses of syndicating a partnership.

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

Discuss whether a C corporation, a partnership, or an S corporation form of organization would be preferred if net operating losses are anticipated in the initial years of operation.

Stephanie owns a 25% interest in a qualifying S corporation. Stephanie's basis in the stock was $40,000 at the end of the year after adjustments are made for capital contributions and distributions (but not operating results). Stephanie also loaned the S corporation $10,000 this year. The S corporation incurred a $240,000 ordinary loss this year. Assume that next year the S corporation's ordinary income is $160,000. Stephanie's basis in her stock at the end of next year is

A partnership's liabilities have increased by year-end. Partners' bases in their partnership interests will increase.

All of the following statements are true with regard to the formation of a partnership except:

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?

A liquidating distribution is treated as a sale or exchange of a partnership interest.

Scott provides accounting services worth $40,000 to the ABC Partnership in exchange for a 20% interest in the capital and profits of the partnership. The tax result to Scott is

If a partner contributes inventory to the partnership in exchange for a partnership interest, the holding period for the partnership interest begins on the date the inventory was acquired by the transferor partner.

A shareholder's basis for the S corporation stock is adjusted for ordinary income or loss and separately stated items that flow through to the shareholders as well as for additional capital contributions by shareholders and distributions to shareholders.

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