Exam 14: Choice of Business Entity-Operations and Distributions

Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.

Pablo owns 30% of Cancun Company, an electing S corporation. Pablo's adjusted basis in the stock is $44,000 at the beginning of the current year. During the current year, Cancun distributes a $60,000 dividend. Cancun Company reports a $200,000 operating loss for the current year. If Pablo is not a material participant in Cancun Company, how much of the loss can he deduct on his income tax return?

Higlo Paints is a partnership that reports an operating income of $50,000 in the current year. Higlo also has a $20,000 Section 1231 gain from the sale of a building and $10,000 in nondeductible expenses. Bernice owns 20% of Higlo and withdraws $5,000 from the partnership during the current year. Bernice's basis will increase by:

Luisa, Lois, and Lucy operate a boutique named Mariabelle's Dreams. Based on advice from Luisa's sister, an accountant, the three form a partnership. Luisa owns 40% and Lois and Lucy each own 30%. For the year, Mariabelle's Dreams reports the following: What amount will Mariabelle's Dreams report to Luisa as her ordinary income from the partnership?

During the current year, Swallowtail Corporation receives dividend income of $40,000 from a 15%-owned domestic corporation. What is Swallowtail's maximum allowable dividend-received deduction for the current year?

William, a CPA, owns a 75% interest in Burglar Concrete Company BCC). BCC is organized as a partnership. During the current year, William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return. I. BCC cannot deduct the $300 fee because of the related party rules. II. William must recognize the $300 fee as income.