Question 1

Felicia contributes property with a FMV of $48,000 (adjusted basis $36,000)for a one-third interest in the partnership. The property is subject to a $24,000 mortgage. Betty (a one-third partner after Felicia's contribution)has an increase in her basis in the partnership of

Accepted Answer

A)  $0.
B)  $4,000.
C)  $8,000.
D)  $12,000. C

Question 2

Clark and Lois formed an equal partnership three years ago. Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV. Three years later the land is sold for $210,000. The tax results to Clark and Lois are

Accepted Answer

A)  $25,000 of gain to both Clark and Lois.
B)  $50,000 of gain to both Clark and Lois.
C)  $25,000 of gain to Clark and $70,000 gain to Lois.
D)  $25,000 of gain to Clark and $95,000 gain to Lois. D

Question 3

Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.

Accepted Answer

A) True 
 B)False  True

Question 4

Richard has a 50% interest in a partnership, and he materially participates in the partnership's business. Richard's adjusted basis in the partnership was $60,000 at the beginning of the year, including his share of partnership liabilities. There were no distributions to Richard during the year. During the current year, the partnership borrowed $160,000 from a local bank to purchase equipment needed in the business. All of the partners are personally liable for all partnership debts. The partnership incurred a $320,000 loss this year. What amount can Richard claim as a loss from the partnership on his individual tax return this year?

Accepted Answer

A)  $60,000
B)  $80,000
C)  $140,000
D)  $160,000

Question 5

A partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

Accepted Answer

A) True 
 B)False

Question 6

Lars has a basis in his partnership interest in XXL of $100,000. He sells the partnership interest in XXL for $160,000. XXL is a cash-basis partnership which has accounts receivable with a $30,000 fair market value and a zero adjusted basis. Lars's share of these receivables is $10,000. What is the amount and character of the gain that Lars recognizes on the sale of his partnership interest?

Accepted Answer

A)  $50,000 capital gain
B)  $60,000 capital gain
C)  $10,000 ordinary income and $50,000 capital gain
D)  $10,000 ordinary income and $60,000 capital gain

Question 7

Emma contributes property having a $24,000 FMV and a $15,000 adjusted basis and also renders legal services valued at $22,000 in exchange for a 30% interest in the capital and profits of the ABC partnership. The tax results to Emma will be

Accepted Answer

A)  no income is recognized and a partnership basis of $37,000.
B)  ordinary income of $22,000 and a partnership basis of $37,000.
C)  ordinary income of $22,000 and a partnership basis of $46,000.
D)  no income is recognized and a partnership basis of $46,000.

Question 8

To receive S corporation treatment, a qualifying shareholder must be an individual, partnership, estate, qualifying trust, or certain kinds of tax-exempt organizations.

Accepted Answer

A) True 
 B)False

Question 9

Jamahl has a 65% interest in a partnership. Jamahl sells land to the JK partnership for $70,000. Prior to the sale, the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl. Two years later the partnership sells the land for $123,000. Due to the sale, the partnership will recognize

Accepted Answer

A)  a gain of $13,000.
B)  a loss of $53,000.
C)  a gain of $33,000.
D)  a loss of $20,000.

Question 10

Hunter contributes property having a $75,000 FMV and a $65,000 adjusted basis which is subject to a $36,000 mortgage in exchange for a one-fourth interest in the ABC Partnership. The partnership owes no other debts, but does assume this mortgage. Profits and losses are shared equally and each partner has a one-fourth interest in partnership capital. Hunter's basis in the partnership is

Accepted Answer

A)  $38,000.
B)  $48,000.
C)  $74,000.
D)  $84,000.

Question 11

DAD Partnership has one corporate partner, Domino Corporation, with a fiscal year-end of June 30. Domino has a 30% interest in DAD. The other partners are individuals with a calendar year for tax purposes, none of whom has a 5% or more interest in DAD Partnership. What are DAD Partnership's choices with respect to selecting a tax year?

Accepted Answer

The answer of DAD Partnership has one corporate partner, Domino...

Question 12

Marlena contributes property having a $30,000 FMV and a $27,000 adjusted basis and also renders accounting services valued at $15,000 in exchange for a 30% interest in the capital and profits of the BBB partnership. LeBron contributes a building with a $100,000 FMV, an adjusted basis of $88,000, and subject to a mortgage of $80,000 for a 40% interest in the capital and profits of the BBB partnership. The partnership assumes the mortgage. Ty contributes cash of $60,000 for a 30% interest in the capital and profits of the BBB partnership.
a. What is each partner's respective basis in the partnership?
b. What are the current income tax consequences to each partner?
c. What is the partnership's basis in the assets transferred in by the partners?

Accepted Answer

The answer of Marlena contributes property having a $30,000 FMV...

Question 13

When capital or Sec. 1231 assets are transferred to a partnership in exchange for a partnership interest qualifying under Sec. 721, the holding period for the partnership interest includes the holding period of the contributed property.

Accepted Answer

A) True 
 B)False

Question 14

Brittany receives a nonliquidating distribution of $48,000 cash from her partnership. Brittany's basis in her partnership interest prior to the distribution is $25,000. What are the tax consequences of the distribution?

Accepted Answer

A)  $48,000 ordinary income; $25,000 partnership basis
B)  $48,000 nontaxable return of capital, ($23,000) partnership basis
C)  $25,000 nontaxable return of capital, capital gain of $23,000, $0 partnership basis
D)  $25,000 nontaxable return of capital, ordinary income of $23,000, $0 partnership basis

Question 15

All of the following are separately stated items that pass through from the partnership to the partners except

Accepted Answer

A)  1231 gains or losses.
B)  charitable contributions.
C)  capital gains and losses.
D)  1245 and 1250 recapture.

Question 16

Which of the following statements regarding the Section 754 adjustment is incorrect?

Accepted Answer

A)  Sec. 754 permits a basis adjustment to partnership assets upon the sale of a partnership interest.
B)  Sec. 754 permits a basis adjustment to partnership assets upon certain distributions.
C)  The Sec. 754 election is made annually by the partnership.
D)  The Sec. 754 election is intended to prevent inequities that may occur when the bases of partnership assets are not adjusted.

Question 17

An S corporation recognizes gain or loss if it distributes property other than money to its shareholders.

Accepted Answer

A) True 
 B)False

Question 18

Edith contributes land having $100,000 FMV and a $85,000 adjusted basis, which is subject to a $66,000 mortgage in exchange for a one-third interest in the EHK Partnership. The partnership owes no other liabilities. After the contribution, Kate, Edith, and Helen share profits and losses equally and each has a one-third interest in the partnership capital. Assume that Kate has a basis in her partnership interest of $50,000 before Edith's contribution to the partnership. The effect of Edith's contribution on partner Kate's basis is to

Accepted Answer

A)  decrease Kate's basis to $28,000.
B)  increase Kate's basis to $72,000.
C)  increase Kate's basis to $77,000.
D)  No effect on Kate's basis.

Question 19

When property is contributed to a partnership, the partnership's basis in the property is the same as that of the transferor partner even if gain is recognized on the transfer.

Accepted Answer

A) True 
 B)False

Question 20

John contributes land having $110,000 FMV and a $90,000 adjusted basis which is subject to a $60,000 mortgage in exchange for a one-third interest in the AJK Partnership. The partnership owes no other liabilities. After the contribution, Abby, John, and Kent share profits and losses equally and each has a one-third interest in the partnership capital. John's basis in the partnership interest is

Accepted Answer

A)  $50,000.
B)  $90,000.
C)  $110,000.
D)  $150,000.

Exam 17: Partnerships and S Corporations

Felicia contributes property with a FMV of $48,000 (adjusted basis $36,000) for a one-third interest in the partnership. The property is subject to a $24,000 mortgage. Betty (a one-third partner after Felicia's contribution) has an increase in her basis in the partnership of

Clark and Lois formed an equal partnership three years ago. Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV. Three years later the land is sold for $210,000. The tax results to Clark and Lois are

Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.

A partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

Emma contributes property having a $24,000 FMV and a $15,000 adjusted basis and also renders legal services valued at $22,000 in exchange for a 30% interest in the capital and profits of the ABC partnership. The tax results to Emma will be

To receive S corporation treatment, a qualifying shareholder must be an individual, partnership, estate, qualifying trust, or certain kinds of tax-exempt organizations.

Jamahl has a 65% interest in a partnership. Jamahl sells land to the JK partnership for $70,000. Prior to the sale, the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl. Two years later the partnership sells the land for $123,000. Due to the sale, the partnership will recognize

When capital or Sec. 1231 assets are transferred to a partnership in exchange for a partnership interest qualifying under Sec. 721, the holding period for the partnership interest includes the holding period of the contributed property.

Brittany receives a nonliquidating distribution of $48,000 cash from her partnership. Brittany's basis in her partnership interest prior to the distribution is $25,000. What are the tax consequences of the distribution?

All of the following are separately stated items that pass through from the partnership to the partners except

Which of the following statements regarding the Section 754 adjustment is incorrect?

An S corporation recognizes gain or loss if it distributes property other than money to its shareholders.

When property is contributed to a partnership, the partnership's basis in the property is the same as that of the transferor partner even if gain is recognized on the transfer.