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Exam 17: Partnerships and S Corporations

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Question 51

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The AAA Partnership makes an election to be an Electing Large Partnership.The partnership reports the following activities: What are the amounts reported by AAA to the partners on Schedule K-1 for inclusion on their individual tax returns?

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The net Sec 1231 gain of $75,000 is trea...

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Question 52

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Patrick acquired a 50% interest in a partnership by contributing property that had an adjusted basis of $8,000 and a fair market value of $29,000.The property was subject to a liability of $22,000,which the partnership assumed for legitimate business purposes.Which of the following statements is correct?

A) Patrick will be required to recognize a $3,000 gain due to the negative basis rules and will have a basis in his partnership interest of zero.
B) Patrick will not be required to recognize a gain on his return and will have a basis in his partnership interest of negative $3,000.
C) Patrick will be required to recognize a $21,000 gain due to the negative basis rules and will have a basis in his partnership interest of zero.
D) Patrick will be required to recognize a $14,000 gain due to the negative basis rules and will have a basis in his partnership interest of zero.

E) A) and B)
F) B) and C)

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Question 53

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Which of the following statements regarding voluntary revocation of the S election is incorrect?

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.

Atiqa receives a nonliquidating distribution of land from her partnership.The partnership purchased the land five years ago for $20,000.At the time of the distribution,it is worth $28,000.Prior to the distribution,Atiqa's basis in her partnership interest is $37,000.Atiqa's basis in the distributed land and her post-distribution basis in her partnership interest are:

Shelley owns a 25% interest in a qualifying S corporation.Shelley's basis in the stock was $15,000 at the beginning of the year.Shelley made no capital contributions and received no distributions during the year.Shelley loaned the S corporation $20,000 this year.The S corporation incurred a $160,000 ordinary loss this year. a.What are the amounts of Shelley's deduction and carryover of the unused loss for the year? b.What is the amount of Shelley's basis in the stock at the end of year one? c.If the S Corporation earned net income of $200,000 in year two,what is the amount of Shelley's stock basis at the end of year two?

Which of the following will be separately stated by a partnership reporting its operations for the year to the IRS?

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.

Minna is a 50% owner of a calendar year S corporation.During the current year,the S corporation had ordinary income of $400,000,short-term capital gain of $150,000 and a charitable contribution of $30,000.What does Minna report for the year from the S corporation?

Hal transferred land having a $160,000 FMV and a $75,000 adjusted basis which is subject to a $150,000 mortgage in exchange for a one-third interest in the HEF Partnership.Hal acquired the land ten years ago.The partnership owes no other liabilities.Hal,Ellen,and Felix share profits and losses equally and each has an one-third interest in partnership capital.Hal's basis in the one-third partnership interest is

When an S corporation shareholder sells her stock,she must first recognize ordinary gain to the extent of her share of the unrealized receivables and appreciation on inventory held by the S corporation,with the balance of the gain treated as capital gain.

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) ?

A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.

Why are some partnership items separately stated?

Voluntary revocation of an S corporation election is permitted only if consent is obtained from all shareholders.

A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.

A partnership sells equipment and recognizes depreciation recapture under Sec.1245.In reporting its results for the year,the partnership will separately state the Sec.1245 depreciation recapture.

A shareholder's deduction for ordinary losses and separately stated items cannot exceed his basis for the S corporation stock plus the debt basis for the shareholder loans made to the corporation and corporate-level liabilities personally guaranteed by the shareholder.

If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

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.Richards Corporation,uses the calendar year as its tax year.It files an S election on March 31,2016.If no reasonable cause is shown,how will Richards Corporation be treated for tax purposes in 2016? 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 12,2016.How will Harper Corporation be treated for tax purposes in 2016? 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 12,2016.The prospective termination date is July 1,2016.How will Hazelwood Corporation be treated for tax purposes in 2016? d.One of the shareholders of Omni Corporation,a calendar-year S corporation,sells his stock to a Canadian individual on July 8,2016.