Exam 17: Partnerships and S Corporations

Mark receives a nonliquidating distribution of $10,000 cash and a parcel of land having an adjusted basis of $18,000 and a fair market value of $25,000. a. Mark's basis in his partnership interest prior to the distribution is $50,000. b. Assume Mark's basis in his partnership interest is instead $22,000 and redetermine the responses to questions (1)through (4).

S corporation shareholders who own more than 2% of the outstanding stock are eligible for the following tax-free benefits

On April 4, 2014, Joan contributes business equipment (she had purchased on October 23, 2010)having a $45,000 FMV and a $40,000 adjusted basis to the EJK Partnership in exchange for a 25% interest in the capital and profits. The basis of the property and the date the holding period begins for the partnership is

Many professional service partnerships have adopted the LLP form primarily because it

Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?

Separately stated items are allocated to the S corporation shareholders based on the number of shares of stock owned on the last day of the S corporation's taxable year.

A business distributes land to one of its owners. The business purchased the land a few years ago for $15,000, but it is now worth $35,000. Compare the treatment of this distribution when made by a partnership as opposed to an S corporation. Consider the impact on the business and the partner/shareholder and the determination of basis in the property.

The corporate built-in gains tax does not apply to a corporation that has always been taxed as an S corporation.

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

Martha transferred property with a FMV of $60,000 (adjusted basis $30,000), which is subject to a $40,000 mortgage in exchange for a one-third interest in a partnership. The partnership has no other liabilities. The partners of MNO own the partnership equally. The partnership's basis in the property contributed is

On July 1, Joseph, a 10% owner, sells his interest in ABC Partnership to Andy, an outsider, for $165,000 cash and the release from $20,000 of partnership liabilities. Joseph's partnership interest at the beginning of the year was $120,000. The partnership earned income through June 30 of $100,000. Joseph's share of partnership liabilities increased by $5,000 from January 1 to June 30. What are the tax consequences to Joseph on the sale of his partnership interest (assume the partnership does not hold any inventory or unrealized receivables)?

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.

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

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

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. What are the tax consequences to Marisa of this transaction?

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

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. 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?

Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land. The partnership had purchased the land five years ago for $20,000, but it is worth $28,000 at the time of the distribution. Ariel's predistribution basis is $17,000. How much income will Ariel recognize due to the distribution, and what is her basis in the land?

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

Which of the following characteristics can disqualify a corporation from S Corporation status?