Reference no: EM131134207
1. In the current year, Sue received a liquidating distribution of real estate from UTSRQ Partnership, a general partnership. The real estate had an adjusted basis to the partnership of $35,000 and a fair market value of $90,000 on the date of the distribution. Sue's adjusted basis in her 20 percent interest in UTSRQ Partnership was $50,000. How much gain or loss did Sue recognize on receipt of the distribution and what is her basis in the real estate?
a. 0 gain or loss recognized and a $50,000 basis in the real estate.
b. 0 gain or loss recognized and a $35,000 basis in the real estate.
c. $40,000 gain recognized and a $90,000 basis in real estate.
d. $15,000 gain recognized and a $50,000 basis in real estate.
2. Which, if either, of the following statements is or are true?
I. On the formation of a partnership, the contribution by one partner of encumbered property to a partnership when other partners contribute only cash will not result in taxation unless the total amount of the debt relief (which in this case equals the net debt relief) exceeds the contributor's basis in the partner's partnership interest.
II. The contribution of accounts receivable to a partnership results in immediate taxation to the contributor to the extent of the fair market value of the receivables on date of contribution.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
3. Under the check-the-box regulations a corporation incorporated under the law of any state can
a. elect to be taxed as a partnership.
b. elect to be taxed as a limited liability company.
c. elect to be taxed as a sole proprietor if there is only one shareholder.
d. not be taxed as anything other than a corporation.
4. On January 2, 2015, Henry, Cabot, and Lodge formed a three-person equal partnership with Henry and Cabot each contributing $100,000 and Lodge contributing securities with a basis to him of $60,000 and a fair market value of $100,000. On February 28, 2015, the partnership sold the securities for $130,000. The amount of the gain to be allocated to Lodge is
a. $70,000.
b. $50,000.
c. $30,000.
d. $23,333.
e. $10,000.
5. Malcolm, a dealer in securities, is a 60 percent owner of the Real Partnership which on July 1, 2015, sold to him Acme Securities which it had held as an investment for three years. The basis of the securities to the Real Partnership was $40,000, and the sales price to Malcolm was $100,000. On his 2015 federal income tax return, Malcolm should report income in the amount and character of
a. $36,000 long-term capital gain.
b. $36,000 short-term capital gain.
c. $36,000 ordinary income.
d. $18,000 long-term capital gain.
e. $18,100 ordinary income.
6. Bobbie and Fran are partners in the Quick Freeze partnership, owning respectively 60 percent and 40 percent of the partnership's capital and profits. At the beginning of the 2015, their bases in their partnership interests were $18,000 and $12,000, respectively. During the year, the partnership had the following items of income: partnership ordinary income, $30,000; long-term capital gains, $10,000; and tax-exempt income from municipal bond interest, $5,000. The partnership distributed $12,000 to Bobbie and $8,000 to Fran. Their respective bases in their partnership interests at the end of 2015 were:
a. Bobbie: $45,000; Fran: $30,000
b. Bobbie: $42,000; Fran: $28,000
c. Bobbie: $37,000; Fran: $18,000
d. Bobbie: $30,000; Fran: $20,000
e. Bobbie: $33,000; Fran: $22,000
7. Bob contributed a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 subject to a mortgage of $120,000 in exchange for a 30 percent interest in the Alpha Partnership. Alpha will assume the mortgage on the building. What is Alpha's basis in the building?
a. $0
b. $30,000
c. $50,000
d. $84,000
8. Which, if either, of the following statements is or are true?
I. A partnership Schedule K-1 to Form 1065 must separately state long-term capital gains and losses but not short-term capital gains and losses.
II. As a general rule, a partner's initial basis in his or her partnership interest equals the total of the fair market value of his/her property plus money, if any, contributed by the partner to the partnership.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
9. Which, if either, of the following statements is or are false?
I. Tax exempt income received by a partnership, for example, municipal bond interest, does not increase a partner's basis in his/her partnership interest because the income is not taxable.
II. A partner who receives a current property distribution (other than cash), made pro rata to all the partners, will not have to report a gain with respect to the distribution.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
10. Rex contributed land to the partnership of Rex, Tex, and Lex Partnership in exchange for a one-third interest in the Partnership. Rex's adjusted basis in the land was $50,000 and its fair market value was $75,000. Rex's Partnership capital account was credited with $75,000. Tex and Lex had each contributed $75,000 cash. Thus, each partner's capital account was $75,000. What is Rex's adjusted basis (outside basis) in his partnership interest?
a. $75,000
b.$50,000.
c. $37,500
d. cannot be determined from the facts stated
11. Ten years ago, Lisa acquired a one-third interest in Dee Associates, a general partnership. In the current taxable year, when Lisa's entire interest in the partnership was liquidated, Dee Associates' assets consisted of cash of $20,000 and tangible property with an adjusted basis to the partnership of $46,000 and a fair market value of $40,000 on the date of distribution. Dee Associates had no liabilities. Lisa's adjusted basis in her one-third interest in the partnership was $22,000. Lisa received cash of $20,000 in complete liquidation of her entire interest. How much loss will Lisa recognize upon receipt of the liquidating distribution?
a. 0
b. $2,000 short-term capital loss
c. $2,000 long-term capital loss
d. $2,000 ordinary loss
12. Mark, Pete and Mickey are equal partners in the 2MP Partnership, a general partnership. On January 1, 2014, Mark's adjusted basis in his partnership interest was $15,000, Pete's adjusted basis in his partnership interest was $10,000, and Mickey's adjusted basis in his partnership interest was $20,000. The partnership had taxable income of $30,000 in 2014 which was allocated equally among the partners. On December 31, 2014, the partnership made a non-liquidating distribution of $25,000 cash to Pete. How much income or gain did Pete recognize as a result of the distribution?
a. 0
b. $5,000
c. $15,000
d. $25,000
13. Ellen is a 25 percent partner in EFGH Partners, a general partnership. Ellen's adjusted basis in her partnership interest is $18,000. During the current taxable year, Ellen received a non-liquidating distribution of land from EFGH Partners that had an adjusted basis to the partnership of $23,000 and a fair market value of $45,000 on the date of distribution. What is Ellen's basis in the land received in the non-liquidating distribution?
a. 0
b. $18,000
c. $23,000
d. $45,000
14. Gary is a one-third partner in GNG Partners. a general partnership. Gary's adjusted basis in his partnership interest is $25,000. Gary received a distribution of real estate in a non-liquidating distribution from the partnership. The real estate had an adjusted basis to the partnership of $20,000 and a fair market value of $50,000 on the date of distribution. What is Gary's basis in the real property received in the non-liquidating distribution?
a. 0
b. $20,000
c. $25,000
d. $50,000
15. On January 1 of the current taxable year, Sam and Barbara form an equal partnership. Sam makes a cash contribution of $60,000 and a contribution of property with an adjusted basis to him of $160,000 and a fair market value of $140,000 in exchange for his interest in the partnership. Barbara contributes property with an adjusted basis to her of $120,000 and a fair market value of $200,000in exchange for her partnership interest. Which of the following statements is accurate regarding the income tax consequences of this transaction?
a. Sam's adjusted basis in his partnership interest is $200,000.
b. The partnership's adjusted basis in the property contributed by Sam is $140,000.
c. Barbara recognized a gain of $80,000 with respect to her contribution of property.
d. Barbara's adjusted basis in her partnership interest is $120,000.
16. Tina and Betty formed a partnership. Tina received a 40 percent interest in the partnership in exchange for land with an adjusted basis to her of $60,000 and a fair market value of $80,000. Betty received a 60 percent interest in the partnership in exchange for $120,000 of cash. Three years after the date of contribution, the land contributed by Tina was sold by the partnership to an unrelated third party for $90,000. How much gain was required to be allocated to Tina as a result of the sale by the partnership?
a. $4,000
b. $12,000
c. $24,000
d. $30,000
17. When inventory that was contributed to a partnership in exchange for a partnership interest is eventually sold by the partnership, how will the character of the income or loss be determined?
a. The character of any income or loss will be ordinary regardless of when the contributed property is sold by the partnership and regardless of the character of the asset in the hands of the partnership.
b. The character of any income or loss will be ordinary if the contributed property is sold by the partnership within five years after the date of contribution regardless of the character of the asset in the hands of the partnership.
c. The character of any income or loss will be based on the character of the asset in the hands of the partnership regardless of when the contributed property is sold by the partnership.
d. The character of any income or loss will be ordinary to the extent of the contributing partner's built-in gain or loss in the property at the time of the contribution regardless of when the contributed property is sold, and any balance will based on the character of the asset in the hands of the partnership.
18. Barbara and Bill formed an equal partnership, B&B, a general partnership, on January 1, 2014. Barbara contributed $100,000 in exchange for her one-half interest. Bill contributed land worth $100,000 that had an adjusted basis to him of $30,000 in exchange for his one-half interest. Which of the following statements is accurate with respect to this transaction?
a. None of Barbara, Bill, or B&B recognized any gain or loss.
b. Bill recognized gain of $70,000, but Barbara and B&B did not recognize any gain or loss.
c. B&B recognized gain of $70,000, but Barbara and Bill did not recognize any gain or loss.
d. Bill and B&B each recognized $70,000 of gain, but Barbara did not recognize any gain or loss.
19. Which of the following decreases a partner's basis in the partner's partnership interest?
a. Additional contributions the partner makes during the year
b. The partner's allocable share of tax-exempt income
c. The partner's allocable share of partnership items of income and gain
d. Cash distributions to the partner during the year
20. Jim, one of two equal partners of the JJ Partnership, a general partnership, contributed business property with an adjusted basis to him of $15,000 and a fair market value of $10,000 to the JJ Partnership. Jim's capital account was credited with $10,000. The property later was sold for $12,000. As a result of this sale, how much gain or loss must Jim report on his personal income tax return?
a. $1,000 gain
b. $1,500 loss
c. $2,000 gain
d. $3,000 loss
21. Ronald and Roy formed an equal partnership, R&R Partnership, a general partnership, on January 1, 2011. Ronald contributed $100,000 in exchange for his one-half interest in R&R partnership. Roy contributed land worth $100,000 and with an adjusted basis to Roy of $30,000 in exchange for his one-half interest in the partnership. Roy is a real estate developer, and at the time of the contribution, the land was inventory in his hands. The land is a capital asset in the hands of R&R Partnership. If R&R Partnership sells the land in 2017 to an unrelated taxpayer for $180,000, how much gain will be recognized by R&R Partnership and what will be the character of the gain?
a. $80,000, all of which gain will be ordinary income
b. $150,000,all of which gain will be capital gain
c. $150,000,all of which gain will be ordinary income
d. $150,000, consisting of $80,000 capital gain and $70,000 ordinary income
22. Glenda received a proportionate non liquidating distribution from the EFG Partnership. The distribution consisted of $10,000 cash and property with an adjusted basis to the partnership of $34,000 and a fair market value of $42,000. Immediately before the distribution, Glenda's adjusted basis in her partnership interest was $60,000. How much is Glenda's basis in the noncash property distributed to her?
a. $10,000
b. $34,000
c. $42,000
d. $50,000
23. All of the following are separately stated items on a partner's Schedule K-1 except
a. short term capital gain.
b. ordinary business income of the partnership.
c. dividends.
d. interest.
24. At the beginning of 2015, Margaret's adjusted basis in her 50 percent interest in MP Partnership, a calendar year general partnership, was $10,000. During 2015, Margaret did not make any additional contributions to MP Partnership, and Margaret's share of MP Partnership liabilities did not change. During 2015, MP Partnership distributed $5,000 to Margaret, and MP Partnership had the following items of partnership income, deduction, gain and loss for 2015:
Separately stated taxable income $30,000
Tax-exempt interest $10,000
Capital loss ($20,000)
What is Margaret's adjusted basis in her partnership interest in MP Partnership at the end of 2014?
a. 0.
b. $10,000.
c. $15,000.
d. $25,000.
25. Sam, Sue, and Shelley formed a partnership. Sam received a 50 percent interest in the partnership in exchange for land with an adjusted basis to him of $30,000 and a fair market value of $50,000. Sue received a 25 percent interest in the partnership in exchange for $25,000 of cash. Shelley received a 25 percent interest in the partnership in exchange for $25,000 of cash. Three years after the date of contribution, the land contributed by Sam was sold by the partnership to an unrelated third party for $90,000. How much gain was required to be allocated to Sam as a result of the sale by the partnership?
a. $20,000.
b. $30,000.
c. $40,000.
d. $60,000.
26. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $100,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner identical parcels of land held by the partnership for investment that each had a fair market value of $25,000 and a basis to the partnership of $10,000. How much is includible in each partner's gross income for the year as the result of the distribution?
a. $80,000
b. $20,000
c. $25,000
d. $10,000
e. 0
27. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $100,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. What is each partner's adjusted basis in the land distributed to the partner?
a. 0
b. $20,000
c. $15,000
d. $10,000
28. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $100,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. What is each partner's adjusted basis in the partner's partnership interest at the close of last year?
a. $90,000
b. $110,000
c. $120,000
d. $170,000
29. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $100,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner $30,000 in cash plus identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. How much is includible in each partner's gross income for the year as the result of the distribution?
a. $80,000
b. $55,000
c. $30,000
d. $10,000
e. 0
30. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $100,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner $30,000 in cash plus identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. What is each partner's adjusted basis in the land distributed to the partner?
a. 0
b. $20,000
c. $15,000
d. $10,000
31. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $100,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner $30,000 in cash plus identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. What is each partner's adjusted basis in the partner's partnership interest at the close of last year?
a. $90,000
b. $65,000
c. $80,000
d. $110,000
32. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $40,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner $55,000 in cash plus identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. How much is includible in each partner's gross income for the year as the result of the distribution?
a. $10,000
b. $55,000
c. $25,000
d. $5,000
e. 0
33. The ABCD partnership has four partners. Each partner's adjusted basis in the partnership interest owned by that partner was $40,000 on the first day of last year. The partnership reported net income for last year of $80,000 (there were no separately stated items to take into account). The partnership distributed pro rata to each partner $55,000 in cash plus identical parcels of land that each had a fair market value of $25,000 and a basis to the partnership of $10,000. What is each partner's adjusted basis in the land distributed to the partner?
a. 0
b. $20,000
c. $15,000
d. $10,000
e. $5,000
Extra Credit Questions
1. Which of the following trusts is eligible to be an S corporation shareholder?
a. Only electing small business trusts.
b. Only eligible foreign trusts.
c. Only qualified subchapter S trust.
d. Only electing small business trusts and qualified subchapter S trusts.
e. All of the above trusts are eligible to be S corporation shareholders.
2. S corporation borrows $5,000 from Bank at 6% interest for one year.
a. If Bill, one of several shareholders of S corporation, signs an agreement with Bank guaranteeing repayment of the loan, he may add $5,000 to the basis of his S stock.
b. If shareholder Bill signs a repayment guarantee he will be entitled to have his Schedule K-1 from S corporation list 100% of the loan interest paid as his deduction to the exclusion of the other shareholders.
c. Even if shareholder Bill signs a repayment guarantee he will not be permitted to increase his S corporation stock basis by $5,000.
d. Partnership and S corporation tax rules allowing partners/shareholders to increase the basis of partners/shareholders by the amount of partnership/corporation debt are identical.
3. Which of the following statements is correct?
a. A husband and wife count as a single S corporation shareholder.
b. A spouse and that spouse's estate count as a single S corporation shareholder.
c. Members of a family with a common ancestor (who meet the six generations test), provided the appropriate election is in effect.
d. All of the above are correct.
4. An S corporation's shareholder's adjusted basis in the shareholder's stock is used to determine
a. the extent to which a distribution made by the corporation to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a given year.
c. the shareholder's realized gain or loss upon the sale or exchange of the stock.
d. all of the above.
5. Which of the following tax consequences is not determined by reference to a shareholder's adjusted basis in the shareholder's stock in an S corporation?
a. the extent to which a distribution made by the corporation to the shareholder is taxable
b. the amount of losses that the shareholder may deduct in a given year
c. the shareholder's realized gain or loss upon the sale or exchange of the stock
d. the amount of distributions to which the shareholder is entitled in a given year
6. Net passive investment income may cause an S corporation to lose S status
a. if it exceeds 30% of the corporation's adjusted gross income for 3 consecutive tax years.
b. unless the corporation was not previously a C corporation.
c. if it is a successor to a C corporation having assets in excess of $10 million fair market value.
d. if the passive investment income was generated by real estate investments.
7. Which of the following is notan eligible S corporation shareholder?
a. The estate of a United States resident alien decedent.
b. A qualified subchapter S trust with only United States resident alien beneficiaries.
c. A multi member limited liability company owned solely by citizens of the United States.
d. An electing small business trust with only United States citizen beneficiaries.
8. Michael owns stock in an S corporation. The corporation sustained a net operating loss this year. Michael's pro rata share of the loss is $5,000. Michael's adjusted basis in his S corporation stock is $1,000 without regard to the loss. In addition, Michael has a loan outstanding to the corporation in the amount of $2,000. Without regard to any passive loss limitation or any at risk rule limitation, what amount, if any, is Michael entitled to deduct with respect to the loss under the subchapter S rules?
a. $1,000.
b. $2,000.
c. $3,000.
d. $5,000.
9. Helen purchased 50 percent of the shares of HIJ Corp., a calendar year S corporation, for $7,000 in 2014. She also loaned the corporation $6,000 in 2014. For 2015, HIJ Corp. had an operating loss of $22,000. Without taking into consideration any loss limitations under the passive activity loss rules or the at risk rules, what is the amount of HIJ Corp.'s loss that Helen can deduct on her individual income tax return for 2015 under the subchapter S rules?
a. $0.
b. $7,000.
c. $11,000.
d. $13,000.
10. To become an S corporation, a corporation must:
a. have once been a C corporation.
b. elect to be treated as such.
c. have at least 100 shareholders.
d. only c and b.
e. all of the above.