Description
Problem A-1 Multiple Choice (30 x 3= 90)
1. Manuel and Becky formed an equal partnership on June 1 of the current year. Manuel contributed $20,000 cash and land with a basis of $6,000 and a fair market value of $15,000. Becky contributed equipment with a basis of $40,000 and a value of $35,000. Manuel’s tax basis in his interest is $35,000; Becky’s tax basis is also $35,000.
True
False
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2.
Montana is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributed a parcel of this land (basis $40,000; fair market value $48,000) to a partnership, which will be held as an investment. After three years, the partnership sells the land for $60,000. The partnership will recognize a $20,000 capital gain on sale of the property.
True
False
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3.
The Chert Partnership distributed $40,000 cash to Francis in a proportionate, nonliquidating distribution. Francis’s basis in her partnership interest was $25,000 immediately before the distribution. As a result of the distribution, Francis’s basis is reduced to $0, and she recognizes $15,000 of capital gain.
True
False
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4.
Ophelia owns a 30% interest in the capital and profits of the Shale Partnership. Immediately before she receives a proportionate nonliquidating distribution from Shale, the basis of her partnership interest is $60,000. The distribution consists of $20,000 in cash and land with a fair market value of $80,000. Shale’s adjusted basis in the land immediately before the distribution is $70,000. As a result of the distribution, Ophelia recognizes no gain and her basis in the land is $40,000.
True
False
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5.
William’s partnership interest basis is $70,000. William receives a proportionate, liquidating distribution from a liquidating partnership of $45,000 cash and inventory having a basis of $30,000 to the partnership and a fair market value of $6,000. William assigns a basis of $6,000 to the inventory and recognizes a $19,000 loss.
True
False
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6.
Janice contributed property with a $48,000 basis and fair market value of $100,000 to the Orange Partnership in exchange for a 30% interest in partnership capital and profits. During the first year of partnership operations, Orange had net taxable income of $40,000 and tax-exempt income of $80,000. The partnership distributed $40,000 cash to Janice. Her share of partnership recourse liabilities on the last day of the partnership year was $30,000. Janice’s adjusted basis (outside basis) for her partnership interest at year-end is:
a. $53,000.
b. $62,000.
c. $74,000.
d. $114,000.
e. Some other amount.
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7.
Annie and Finn formed a partnership. Annie received a 50% interest in partnership capital and profits in exchange for contributing land with a basis of $260,000 and a fair market value of $400,000. Finn received a 50% interest in partnership capital and profits in exchange for contributing $400,000 of cash. Three years after the contribution date, the land contributed by Annie is sold by the partnership to a third party for $460,000. How much taxable gain will Annie recognize from the sale?
a. $30,000.
b. $140,000.
c. $170,000.
d. $200,000.
e. None of the above.
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8.
Cherize is a partner in the Myrtle Partnership, which is not publicly traded. Her allocable share of Myrtle’s passive ordinary losses from a nonrealty activity for the current year is ($200,000). Cherize has a $125,000 adjusted basis (outside basis) for her interest in Myrtle (before deduction of any of the passive losses). Her amount “at risk” under § 465 is $50,000 (before deduction of any of the passive losses). She also has $60,000 of passive income from other sources. How much of the $200,000 passive loss allocated to her can Cherize deduct on her current year’s tax return?
a. $200,000.
b. $125,000.
c. $60,000.
d. $50,000.
e. None of the above.
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9.
Hanna receives a proportionate, nonliquidating distribution from the Quartz Partnership. The distribution consists of $40,000 cash and property with an adjusted basis to the partnership of $140,000 and a fair market value of $170,000. Immediately before the distribution, Hanna’s adjusted basis for her partnership interest is $160,000. Hanna’s basis in the noncash property received is:
a. $40,000.
b. $120,000.
c. $140,000.
d. $170,000.
e. None of the above.
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10.
Grover has an outside basis of $90,000 in the Gypsum Partnership as of December 31 of the current year. On that date the partnership liquidates and distributes to Grover a proportionate distribution of $35,000 cash and inventory with an inside basis to the partnership of $25,000 and a fair market value of $50,000. In addition, Grover receives a safe which has an inside basis and fair market value of $4,500 and $6,000, respectively. None of the distribution is for partnership goodwill. How much gain or loss will Grover recognize on the distribution, and what basis will he take in the safe?
a. $25,500 loss; $4,500 basis.
b. $5,000 loss; $-0- basis.
c. $24,000 loss; $6,000 basis.
d. $0 loss; $30,000 basis.
e. None of the above.
11. Separately stated deductions and income items retain any special tax characteristics when they are reported on S corporation shareholders’ returns.
True
False
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12.
Family members can not be treated as one shareholder for S corporation purposes.
True
False
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13.
An S corporation may take the charitable contribution deduction.
True
False
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14.
Tax-exempt income at the corporate level flows through to the shareholders.
True
False
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15.
An S corporation must recognize gains but not losses on a distribution of property to shareholders.
True
False
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16.
Which of the following is not a required characteristic of a corporation qualifying as a small business corporation?
a. Is a domestic corporation.
b. Has only one class of stock.
c. Is limited to $1 million in sales.
d. Has no nonresident alien shareholders.
e. All of the above statements are correct.
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17.
Which of the following events will not cause the termination of an S election?
a. A new shareholder owning more than one-half of the stock affirmatively refuses to consent to the election.
b. Shareholders owning 60% of shares (voting and nonvoting) voluntarily revoke the election.
c. The death of a majority shareholder.
d. The corporation no longer qualifies as a small business corporation.
e. All of the above.
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18.
During 2013, Alexander Mills, the sole shareholder of a calendar year S corporation, received a distribution of $100,000. On December 31, 2012, his stock basis was $49,000. The corporation earned $50,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?
a. Mills recognizes a $1,000 LTCG.
b. Mills’s stock basis will be $49,000.
c. Mills’s ordinary income is $51,000.
d. Mills’s return of capital is $51,000.
e. None of the above.
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19.
Antonio has been the sole shareholder of a calendar year S corporation since 1980. At the end of 2013, Antonio’s stock basis is $23,500, and she receives a distribution of $26,000. Corporate level accounts are computed as follows.
AAA $ 7,000
PTI 11,000
Accumulated E & P 600
How much capital gain, if any, will Antonio have?
a. $600.
b. $1,900.
c. $7,400.
d. $8,000.
e. None of the above.
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20.
Lamar is the sole shareholder of an S corporation in Baton Rouge, Louisiana. At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $60,000 (basis of $20,000). There is no built-in gain. Lamar’s taxable gain is:
a. $0.
b. $20,000.
c. $40,000.
d. $60,000.
e. None of the above.
21. An exempt entity may be subject to certain types of taxes.
True
False
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22 .
A general requirement for exempt status is that the organization not benefit the members of the organization.
True
False
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23.
Engaging in a prohibited transaction can result in an exempt organization being subject to Federal income tax and may cause certain insiders to be subject to intermediate sanctions.
True
False
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24.
An exempt organization that is eligible to elect under § 501(h) to engage in lobbying activities on a limited basis will not incur a tax liability from lobbying unless the lobbying expenditures for the tax year exceed the lobbying nontaxable amount.
True
False
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25.
A feeder organization is subject to Federal income taxation even though it carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt entity.
True
False
26. If a taxpayer overstates deductions by more than 25% of the gross income on the return, the statute of limitations on assessments is increased to six years.
True
False
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27.
In general, an offer in compromise may not be terminated by the IRS even if the taxpayer’s financial condition changes.
True
False
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28.
Thomas, a calendar year taxpayer, applies for and receives an extension for filing his 2013 income tax return. Of the $50,000 of taxes he owed for 2012, $30,000 had been paid through withholding by the due date in 2014. Thomas eventually files on July 20, 2014, and remits the balance due of $20,000. Based on these facts, Thomas owes:
a. Neither a failure to file penalty nor a failure to pay penalty.
b. A failure to file penalty of $3,600 and a failure to pay penalty of $400.
c. A failure to file penalty of $0 and a failure to pay penalty of $400.
d. A failure to file penalty of $0 and a failure to pay penalty of $300.
e. Some other amounts.
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29
Kumar, a calendar year taxpayer, does not apply for and receive an extension for filing his 2013 income tax return. Of the $60,000 of taxes he owed for 2013, $40,000 had been paid through withholding by the due date in 2014. Kumar eventually files on June 20, 2014, and remits the balance due of $20,000. Based on these facts and considering only the failure to file and pay penalties, Kumar owes:
a. $4,000.
b. $3,600.
c. $3,000.
d. $2,700.
e. Some other amount.
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30.
A taxpayer realizes in September that he will be subject to a penalty for the underpayment of estimated payments. What is the best thing the taxpayer can do at this late date to rectify the problem?
a. Obtain an extension for payment of the estimated tax.
b. File a new W-4 and have the underpaid amount withheld during the last half of the year.
c. Make up the underpayment in the final two quarters estimated payments.
d. Make an estimated tax payment equal to the underpayment as quickly as possible.
e. None of the above.
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