Exam 14: Choice of Business Entity-Operations and Distributions

The amount of the dividend on a nonliquidating corporate distribution of property is the fair falue of the property.

Anna owns 20% of Cross Co., an electing S corporation. Anna's adjusted basis in the stock is $32,000 at the beginning of the current year. During the current year, Cross pays a $50,000 cash dividend to its shareholders. Cross Co. reports a $200,000 operating loss for the current year. Which of the following statements is/are correct? I. If Anna is a material participant in Chris Co., she can deduct a $40,000 loss. II. Anna's maximum loss deduction is limited to $22,000.

Hammond Inc., sells a building that it purchased in 2001 for $1,500,000. The building cost $1,000,000 and had an adjusted basis of $700,000 at the date of the sale. I. Hammond has an $800,000 Section 1231 gain on the sale. II. Hammond must report $300,000 of Unrecaptured Section 1250 gain.

Calvin Corporation, has the following items of income and expense for the current year. Calculate a) Calvin's taxable income and b) income tax liability.

Joline operates Adventure Tours as a sole proprietorship. For the year, Adventure Tours has the following income and expense items: If Joline has other income of $6,000, what is her adjusted gross income?

The Gilpin Partnership has an operating loss of $400,000 for the current year. Hawkins is a general partner and owns a 40% interest in the partnership. At the beginning of the year, Hawkins' adjusted basis in the partnership interest is $30,000. During the year the partnership borrows $120,000 with a recourse note. How much of the partnership loss can Hawkins deduct on his current-year income tax return?

Mario receives a liquidating distribution of land with a fair market value of $19,000 and a basis of $15,000 from Blithe Corporation, an S corporation. Mario's basis in the stock is $21,000. What must Mario and Blithe report as income loss) from the property distribution?

Peter owns 30% of Bear Company, an electing S corporation. Peter's adjusted basis in the stock is $44,000 at the beginning of the current year. During the current year, Bear distributes a $60,000 dividend. Bear Company reports a $200,000 operating loss for the current year. If Peter is a material participant in Bear Company, how much of the loss can he deduct on his income tax return?

Fender Corporation makes a cash distribution of $40,000 to Gibson in complete liquidation of the corporation. Gibson's basis in Fender stock is $18,000. What must Gibson report as income from the cash distribution?

When a partnership distributes property that has a fair market value greater than its basis, the partnership must recognize the income as if it sold the property.

A partner's basis is increased by the amount of deductible loss that flows through from the partnership.

Lane Inc., an electing S corporation, realizes $150,000 from sales during the current year. Lane also receives $20,000 of dividends from a 3% owned corporation. Operating expenses total $155,000. Lane's operating income is

osey Corporation distributes land with a fair market value of $20,000 and a basis of $12,000 to Brock, a shareholder. Posey's earnings and profits are $125,000. What must Brock report as income from the property distribution?

Although nontaxable income and nondeductible expenditures are not included in the computation of taxable income, they do affect the shareholder's basis in their S corporation stock.

Roger owns 65% of Silver Trucking, a partnership. During the current year, Roger sells a truck with an adjusted basis of $30,000 to Silver for $20,000. I. Silver's basis in the truck is $30,000. II. Roger can deduct the $10,000 loss on the sale of the truck.

With the exception of personal service and closely-held corporations, regular corporations are not subject to the passive activity rules.

The Polaris S Corporation has operating income of $50,000. Andrew is the sole shareholder of the corporation that has had the S election in effect since its inception. At the beginning of the current year, Andrew's basis in his S corporation stock is $2,000. During the year Andrew receives cash distributions totaling $55,000. How much income must Andrew recognize for the current tax year?

Passive activity loss limitation rules do not apply to I. Publicly-held corporations. II. Personal service corporations.

When a partner receives a cash distribution from a partnership, the distribution is never taxable even if the amount of cash received is greater than the partner's basis in the partnership.

Malcolm receives a liquidating distribution of land with a fair market value of $14,000 and a basis of $19,000 from Blithe Corporation, an S corporation. Malcolm's basis in the stock is $21,000. What must Malcolm and Blithe report as income loss) from the property distribution?