2 . Identify which of the following statements is true:
If an S Corporation has no accumulated earnings and profits, the
amount distributed to a shareholder will not increase the
shareholder's basis in the stock
If a C Corporation does not distribute its income to its shareholders, double taxation of the income will occur.
C Corporation operating losses are deductible by the individual shareholders
S Corporation operating losses are never deductible by the individual shareholders.
3. At the formation of the BD Partnership, Betty contributes
land with a basis of $10,000 and a FMV of $20,000 and Bob
contributes cash of $20,000. Betty and Bob share profits and losses
equally. When the land is sold two years later for $40,000, Betty
must recognize a gain of
4. Ira Grams is a 60% owner of a calendar year Partnership
during the tax year. His beginning stock basis is $30,000, and the
Partnership reports the following items.
Short-term capital gain 10,000
Section 1231 Loss 6,000
Tax-exempt interest income 5,000
Cost of Goods Sold 24,000
Operating Expenses 5,000
Distribution to Ira Grams 10,000
Ira's share of the ordinary income is:
5. Ryan's adjusted basis in the his Lux Partnership interest was $18,000 at the time he received the following nonliquidating distributions of partnership property: Cash of $15,000; Land with an adjusted basis of $14,000, but a fair market value of $30,000. Ryan's taxable gain from the distribution is:
6. On January 2 of the current year, Black acquired a 50%
interest in the New Partnership by contributing property with an
adjusted basis of $10,000 and a fair market value of $19,000. The
property is subject to a mortgage of $5,000.. What is Black's basis
in his partnership on January 2?
7. The adjusted basis of Jody's partnership interest was $30,000 immediately before Jody received a current distribution of $40,000 cash and property with an adjusted basis to the partnership of $30,000 and a fair market value of $50,000. What amount of taxable gain must Jody report as a result of this distribution?
8. Day's adjusted basis in the LMN Partnership interest is $50,000. During the year, Day receives a nonliquidating distribution of $25,000 cash plus land with an adjusted basis of $18,000 to LMN, and a fair market value of $20,000. How much is Day's basis in the land received?
9. For some entities, the basis of an ownership interest is increased by the entity profits. Which entity or entities does this apply to?
Applies only to a partnership
Applies to a corporation
Applies to both a partnership and an S Corporation.
Applies only to an S Corporation.
10. Sanjay contributes land to a business entity in January 2017
for a 10% ownership interest. Sanjay’s basis for the land is
$80,000, and the fair market value is $100,000. The business entity
was formed ten years ago by Polly and Rita, who have equal
ownership. Which of the following statements is false?
If the entity is a C Corporation, Sanjay will have $20,000 of taxable income
If the entity is a partnership, Sanjay will have no recognized income
If the entity is a Partnership, Sanjay will have $20,000 of recognized income
If the entity is an S Corporation, Sanjay will recognize $20,000 of taxable income
11. Bread Corporation is a C corporation with earnings of $150,000. It paid $60,000 of dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S Corporation. Butter had net taxable income of $40,000 and made a $30,000 distribution to Gerald. What total income will Gerald report from Bread and Butter’s activities?
12. At the first of the year, Arch and Bean contribute cash equally to form the JK partnership. Arch and Bean share profits and losses in a ratio of 75% to 25% respectively. For the current year, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during the current year. What amount of ordinary income should Bean report from the JK partnership?
13. Identify which of the following statements is true.
All cash distributions from a partnership require the partners to pay taxes on those distributions.
Distribution of partnership income in the form of cash to partners is generally taxable to the
partners as long as there is sufficient basis.
If property distributions exceed the partner's basis in the partnership interest, a partner would not have to recognize gain on a distribution from the partnership.
All of the above are true.
14. Stan had a basis in his 50% partnership interest at the
beginning of this year of $20,000 in a partnership in which he
actively participates. There was no change in partnership
liabilities during the year. The partnership's ordinary loss this
year was $60,000 and the partnership had no separately stated
items. The deductible loss from the partnership reported on Stan's
personal income tax return this year is
15. The Qualified Business Income Deduction applies to
individuals who own an interest in a:
Both a Partnership and an S Corporation
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