Gleim study units 17, 14, and 15

Carmen has a 55% capital interest and 40% interest in the profits and losses of CCD Partnership. She also owns 60% interest in the profits and losses of Dream Partnership. On September 25 of the current year, CCD Partnership sold a piece of real estate to Dream for $20,000. CCD's adjusted basis at the time of the sale was $26,000. What is the amount of loss that CCD Partnership can recognize in the current year?

D. $0

Single Corporation, which is owned equally by four individual shareholders, owns all of the stock of Double Corporation. The Double Corporation stock was acquired 8 years ago. It has a fair market value of $80,000 and an adjusted basis of $20,000. Single distributes the Double stock equally to the four shareholders as part of a spinoff transaction at the time that it has $120,000 of earnings and profits. What amount and type of income does each of Single's shareholders report as a result of the distribution?

D. $0

Under a plan of complete liquidation, Len Corporation distributed land, having an adjusted basis to Len of $26,000, to its sole shareholder. The land was subject to a liability of $38,000, which the shareholder assumed for legitimate business purposes. The fair market value of the land on the date of distribution was $35,000. What is the amount of Len Corporation's recognized gain or (loss)?

D. $12,000

Doug sold 50% of his business to his son, Ben. The resulting partnership had a profit of $60,000. Capital is a material income-producing factor. Doug performed services worth $24,000, which is reasonable compensation, and Ben performed no services. What is the maximum amount of profit that Ben can report from the partnership for the tax year?

D. $18,000

At June 30, Year 1, Burns and Cooper were equal partners in a partnership with net assets having a tax basis and fair market value of $100,000. On July 1, Year 1, Todd contributed securities with a fair market value of $50,000 (purchased 10 years ago at a cost of $35,000) to become an equal partner in the new firm of Burns, Cooper, and Todd. The securities were sold on December 15, Year 2, for $65,000. How much of the partnership's capital gain from the sale of these securities should be allocated to Todd?

D. $20,000

Corporations X, Y, and Z are component members of a controlled group of corporations on December 31 of the current year. For the current year, they allocate the taxable income brackets under an apportionment plan as follows: Corporation X 1/4 of each tax bracket Corporation Y 1/2 of each tax bracket Corporation Z 1/4 of each tax bracket Corporation Y has taxable income of $80,000 for the current year. What is Corporation Y's income tax liability if the controlled group's total taxable income is $97,000?

D. $21,325

Arnold Money invested $20,000 for a one-third interest in capital and profits of a partnership. Subsequent to his investment, the partnership had taxable income of $30,000 and nontaxable income of $6,000, and Money withdrew $9,000. After this series of events, the tax basis of Money's interest in the partnership is

D. $23,000

Mr. Fox owns 500 shares of stock in Ocean Corporation, which represents 52% of Ocean's only class of stock issued and outstanding. Mr. Fox's basis in the stock is $50,000 ($100 per share). Ocean redeems 250 shares of Mr. Fox's stock for $40,000. The redemption is properly treated as a distribution of cash in exchange for the stock. What is Mr. Fox's basis in his remaining shares of stock?

D. $25,000

The minimum Accumulated Earnings Credit is

D. $250,000 for nonservice corporations only.

Corporation T, a domestic corporation, distributes the following dividends to its shareholders in the current year: $1,000 to Shareholder A, an unrelated foreign corporation $1,200 to Shareholder B, a foreign partnership $1,300 to Shareholder C, a resident alien $1,400 to Shareholder D, a nonresident alien, with an address in care of another person in the U.S. All income of Corporation T was from sources within the United States. Assume no tax treaties to which the U.S. is a party are involved. On what amount of dividends must T withhold tax?

D. $3,600

Ben Krug, sole proprietor of Krug Dairy, hired Jan Karl in Year 1 for an agreed salary and the promise of a 10% partnership capital interest if Karl continued in Krug's employ until the end of Year 4. On January 1, Year 5, when the net worth of the business was $300,000, the partnership was formed as agreed. On what amount will Karl have to pay tax in Year 5 for the partnership capital interest received by him?

D. $30,000

Corporation K distributed a parcel of real estate to a shareholder that had an adjusted basis to the corporation of $50,000 and a fair market value of $75,000. The property was subject to a mortgage of $80,000, which was assumed by the shareholder. What is Corporation K's recognized gain (or loss) on the distribution to the shareholder?

D. $30,000

The following information pertains to Hull, Inc., a personal holding company, for the current year ended December 31: Undistributed personal holding company income $100,000 Dividends paid during May 20,000 Consent dividends reported in the current-year individual income tax returns of the holders of Hull's common stock but not paid in cash by Hull to its shareholders 10,000 In computing its current-year personal holding company tax, what amount should Hull deduct for dividends paid?

D. $30,000

Mr. L owned 100 shares of stock in Willow Corporation. During the current year, Willow completely liquidated and distributed the following to L: Cash $ 25,000 Land: Fair market value 450,000 Subject to a mortgage of 200,000 Mr. L's adjusted basis in Willow's stock was $50,000 and he will assume the mortgage on the land. What is L's basis in the land received?

D. $450,000

Sara Loy is a member of a four-person equal partnership. Sara is unrelated to the other partners. In the current year, Sara sold 100 shares of a listed stock to the partnership for the stock's fair market value of $20,000. Sara's basis for this stock, which was purchased 15 years ago, was $14,000. Sara's recognized gain on the sale of this stock was

D. $6,000

Last year, Jim Cash, one of two equal partners, contributed land with a basis to him of $15,000 and a fair market value of $10,000 to the partnership of which he was a member. His capital account was credited for $10,000. The land was later sold for $8,000. As a result of this sale, Cash must report on his personal income tax return a

D. $6,000 loss.

Zebra Corporation distributed property in proportionate redemption of its stock in a partial liquidation. Zebra had earnings and profits exceeding the amount of the distribution. A distribution was made to Tiger Corporation, a 25% shareholder. The distributed property had a $75,000 fair market value and a $40,000 adjusted basis to Zebra. Tiger had an adjusted basis of $25,000 in the stock redeemed by Zebra. What is the tax effect to Tiger?

D. $75,000 dividend.

In the consolidated income tax return of a corporation and its wholly owned subsidiary, what percentage of cash dividends paid by the subsidiary to the parent is tax-free?

D. 100%

The Z Corporation's common stock is owned by the following individuals and corporations: Number of Shares Mr. B: 20 Mrs. B: 20 T Corporation: 30 X Corporation: 30 Total: 100 The B family does not own any of T or X Corporation's stock. Mr. B would like to redeem some of his shares and have the redemption treated as an exchange. The minimum number of Mr. B's shares that Z Corporation must redeem in order for the redemption to qualify for exchange treatment under the substantially disproportionate rules of Sec. 302(b)(2) is (rounded to the nearest share)

D. 12

EJH Partnership was organized in the current year with three partners: E, J, and H. The three individuals elected to use the default classification when filing the entity's federal income tax return. The partnership wants to change its tax classification from being a partnership to being an association taxed as a C corporation. How long after changing to C corporation status must the EJH Partnership wait before it can make another change in classification by election?

D. 60 months.

An item not subtracted in determining accumulated taxable income for the accumulated earnings tax is

D. A net operating loss deduction from a prior year.

A group of corporations (A, B, C, D, and E) all having only one class of stock have the following ownership and classification: Corp. A -- Domestic corporation that owns 85% of B, 20% of C, and 100% of E's outstanding stock Corp. B -- Domestic corporation that owns 70% of C and 100% of D's outstanding stock Corp. C -- Domestic corporation that owns 10% of A's stock Corp. D -- B's Foreign Sales Corporation (FSC) Corp. E -- Foreign corporation that owns 10% of C and 5% of B's stock Which are members of an affiliated group?

D. A, B, and C

Which of the following organizations formed after 1996 cannot be classified as a partnership?

D. All of the answers are correct.

When a partner in a six-partner partnership dies, the partnership tax year must close

D. At the end of the regular partnership year for the surviving partners.

Earl acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and that was subject to a mortgage of $12,000. Which of the following results is correct?

D. Capital Gain Recognized: $1,600 Basis of Partnership Interest: $0

which of the following items is not an adjustment to taxable income when determining a corporation's current earnings and profits amount?

D. Capital contributions

A distribution of stock or rights to acquire stock in the distributing corporation is excluded from the recipient's gross income unless

D. It is either a disproportionate distribution, or a distribution instead of money or other property

A controlled group of corporations that has filed an apportionment plan to divide the taxable income brackets

D. May adopt an unequal apportionment plan.

Mr. X owned 40% of Corporation B's only class of stock outstanding. The remaining 60% of B's stock was owned by Mr. Y (not related to Mr. X). Corporation B redeemed all of X's stock for $75,000 and one-half of Y's stock for $50,000. Mr. X's and Mr. Y's bases in their stock of Corporation B were $30,000 and $25,000, respectively. B's earnings and profits were $200,000. Assuming that no partial liquidation occurred, what are the amount and the character of X's and Y's recognized gains?

D. Mr.X: $45,000 capital gain Mr. Y: $50,000 dividend

In each of the following situations, assume that capital accounts are maintained in accordance with the Sec. 704 regulations, the allocation is reflected in the capital account, and liquidation is in accordance with capital accounts with deficit balances to be restored on liquidation. Which of these special allocations has substantial economic effect?

D. Partner A receives all depreciation deductions. Gains and losses from the sale of depreciable assets are allocated pro rata among the partners.

Acme Corp. has two shareholders who own all of its common stock. Acme derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its after-tax income as dividends to its shareholders. Acme is a

D. Personal holding company.

Which of the following types of income is not generally considered personal holding company income?

D. Personal services income.

Pursuant to a plan of corporate reorganization adopted in the current year, Myra Eber exchanged 1,000 shares of Faro Corporation common stock, which she had purchased for $75,000, for 1,800 shares of Judd Corporation common stock having a fair market value of $86,000. As a result of this exchange, Eber's recognized gain and her basis in the Judd stock should be

D. Recognized Gain: $0 Basis: $75,000

Which of the following would not be considered reasonable needs of a business in determining the accumulated earnings tax?

D. Specific and feasible plan to declare a stock dividend to all shareholders.

In figuring the amount of a distribution by a corporation to its shareholders, the term "property" includes all of the following except

D. Stock of the distributing corporation

When the AQR partnership was formed, partner Acre contributed land with a fair market value of $100,000 and a tax basis of $60,000 in exchange for a one-third interest in the partnership. The AQR partnership agreement specifies that each partner will share equally in the partnership's profits and losses. During its first year of operation, AQR sold the land to an unrelated third party for $160,000. What is the proper tax treatment of the sale?

D. The first $40,000 of gain is allocated to Acre, and the remaining gain of $60,000 is shared equally by all the partners in the partnership.

Which one of the following is least important when reviewing the partnership agreement for income tax purposes?

D. The form of the agreement.

Which one of the following statements is false?

D. The partnership is required to file a declaration of estimated tax in any year it anticipates a profit.

With respect to the redemption of stock, each of the following tests establishes that the redemption can be treated as an exchange of stock rather than as a dividend except

D. The redemption is of stock held by a corporate shareholder and is made in partial liquidation of the redeeming corporation.

With regard to the filing of Form 1099-DIV, all of the following are true except

D. This form is filed by payers for royalties paid to authors.

Dana Corporation owns stock in Seco Corporation. For Dana and Seco to qualify for the filing of consolidated returns, at least what percentage of Seco's total voting power and total value of stock must be directly owned by Dana?

D. Total voting power 80% Total value of stock 80%

A Corp. owned 100% of both the voting stock and total value of B Corp. Both corporations were C corporations. A's basis in the B stock was $200,000 when it received a lump sum liquidating distribution of property as a result of the redemption of all of B stock. The property had an adjusted basis (AB) of $270,000 and a fair market value of $500,000. What amount of gain did A recognize on the distribution?

A. $0

Individual Y owns 55% of Beta Corporation. Five years ago, Y contributed property with an adjusted basis of $20,000 and a fair market value of $8,000 to Beta in a transaction qualifying under Sec. 351. In the current year, Beta adopted a plan of complete liquidation and distributed this same property to Y. At this time, the property had an adjusted basis of $18,000 and a fair market value of $5,000. How much loss will Beta recognize on the distribution?

A. $0

On January 1 of the current year, Pearl Corporation owned 90% of the outstanding stock of Seso Corporation. Both companies were domestic corporations. Pursuant to a plan of liquidation adopted by Seso in March of the same year, Seso distributed all of its property in September in complete redemption of all its stock. Seso's accumulated earnings were $18,000 on the distribution date. Seso had never been insolvent. Pursuant to the liquidation, Seso transferred to Pearl a parcel of land with a basis of $10,000 and a fair market value of $40,000 in redemption of its stock. How much gain must Seso recognize in the current year on the transfer of this land to Pearl?

A. $0

On March 10, Year 1, Daniel contributed land in exchange for a 25% partnership interest in Parr Company. The fair market value of the land at that time was $40,000, and Daniel's adjusted basis was $25,000. On December 2, Year 3, Parr distributed that land to Daniel. The fair market value at that time was $50,000. What is the amount of Daniel's recognized gain from this transaction?

A. $0

On May 1 of the current year, Mr. Good contributed 500 shares of stock in Candid Corporation to the partnership of Murphy & Wooster for a 25% interest in the partnership's capital and profits. The stock, which he purchased 10 years ago for $20,000, had a fair market value on May 1 of $100,000. On May 1 of the current year, the fair market value of the partnership's net assets, after Good's contribution, was $400,000. What is the amount of Good's recognized gain in the current year on the exchange?

A. $0

The following information pertains to Carr's admission to the Smith & Jones partnership on July 1 of the current year: Carr's contribution of capital: 800 shares of Ed Corporation stock bought 10 years ago for $30,000; fair market value $150,000 on July 1 of the current year. Carr's interest in capital and profits of Smith & Jones: 25%. Fair market value of net assets of Smith & Jones on July 1 of the current year after Carr's admission: $600,000. Carr's recognized gain in the current year on the exchange of the Ed stock for Carr's partnership interest was

A. $0

Daystar Corp., which is not a mere holding or investment company, derives its income from retail sales. Daystar had accumulated earnings and profits of $145,000 at December 31 of last year. For the current year, it had earnings and profits of $115,000 and a dividends-paid deduction of $15,000 for a dividend paid in June. No throwback distributions have been made. It has been determined that $20,000 of the current and accumulated earnings and profits for this year is required for the reasonable needs of the business. How much is the allowable Accumulated Earnings Credit at December 31 of the current year?

A. $105,000

Andrew is a 40% partner in the ABC Partnership, in which capital is a material income-producing factor. He gives one-half of his interest to his brother, John. During the current year, Andrew performs services for the partnership for which reasonable compensation is $65,000 but for which he accepts no pay. Andrew and John are each credited with a $100,000 distributive share of the partnership's ordinary income. How much should Andrew report?

A. $132,500

In return for a 20% partnership interest, Kathy contributed land having a $60,000 fair market value and a $30,000 basis to the partnership. The partnership assumes Kathy's $15,000 liability arising from her purchase of the land. The partnership's liabilities arising from its purchases of assets is $4,000 immediately prior to the contribution. What is Kathy's basis in her partnership interest?

A. $18,800

A and B formed a partnership by transferring the following assets to the partnership: A transferred $25,000 in cash and equipment, which cost $27,000, had an adjusted basis of $19,800, and had a fair market value of $30,000; B transferred cash of $50,000. The partnership's basis in equipment transferred to the partnership by A is

A. $19,800

Pursuant to a plan of reorganization adopted in the current year, Summit Corporation exchanged 1,000 shares of its common stock and paid $40,000 cash for Hansen Corporation's assets with an adjusted basis of $200,000 (fair market value of $300,000). Hansen Corporation was liquidated shortly after the exchange, with its shareholders receiving the Summit stock and cash. The 1,000 shares of Summit common stock had a fair market value of $260,000 on the date of the exchange. What is the basis to Summit of the assets acquired in the exchange?

A. $200,000

Mr. P owned 100 shares of Corporation C common stock. During the current year, Mr. P received $300 in cash dividends, 50 additional shares of C's common stock, and the right to purchase 50 more shares. The fair market values of the stock and stock rights were $200 and $100, respectively. The distributions were not disproportionate, and the shareholders were not given an option to receive cash instead of the stock or stock rights. What amount of the distributions is includible in Mr. P's income for the current year?

A. $300

francis corporation had taxable income of $260,000 for its initial taxable year. A review of company records revealed the following information:... earnings and profit for francis corporation at the close of the current year were

A. $351,000

Kay Shea owns a 55% interest in the capital and profits of Admor Antiques, a partnership. In the current year, Kay sold an oriental lamp to Admor for $5,000. Kay bought this lamp 16 years ago for her personal use at a cost of $1,000 and used it continuously in her home until she sold it to Admor. Admor purchased the lamp as inventory for sale to customers in the ordinary course of business. What is Kay's reportable gain in the current year on the sale of the lamp to Admor?

A. $4,000 ordinary income

The partners Martin, Cynthia, and Libby share profits and losses in a ratio of 4:3:3, respectively. All three materially participate in the partnership's business. The tax basis of each partner as of December 31 of the current year was as follows: Martin $7,200 Cynthia 6,000 Libby 2,500 The partnership has no nonrecourse liabilities. During the year, the partnership incurred an operating loss of $15,000. The loss is not reflected in the tax basis figures shown above. As a result of this loss, Martin, Cynthia, and Libby should deduct, respectively, on their current-year individual returns

A. $6,000, $4,500, and $2,500.

The partnership of Truman, Inc., and Bill Hanover realized the following items of income during the current year: Net income from sales $62,000 Dividends from domestic corporations 4,000 Interest on corporate bonds 3,000 Net long-term capital gains 5,000 Net short-term capital gains 1,000 Net rental income 7,000 The total income that should be reported as ordinary income of the partnership for the current year is

A. $62,000

The adjusted basis of Stan's partnership interest is $15,000. He receives a distribution of cash of $6,000 and property with an adjusted basis to the partnership of $11,000. (This was not a distribution in liquidation.) What is the basis of the distributed property in Stan's hands?

A. $9,000

Which of the following rates is used to compute the personal holding company tax for 2018?

A. 20%

Two years ago, Mr. P bought 100 shares of stock in Corporation X for $20 per share. Last year, Mr. P bought 100 shares of Corporation X stock for $28 per share. This year, X declared a 2-for-1 stock split. The fair market value of the stock at the time of the split was $50 per share. What is Mr. P's basis in Corporation X stock?

A. 200 shares at $10 per share and 200 shares at $14 per share.

Corporation Z has 100 shares of stock issued and outstanding, owned by the following: Shares: Shareholder 10: R 10: R's wife 10: R's son 10: R's mother 10: R's brother 10: R's uncle 10: Partnership X (R is a 10% partner) 10: Corporation A (R is a 40% shareholder) 10: Corporation B (R is a 50% shareholder) 10: Corporation C (R is an 80% shareholder) 100 Neither R's relatives nor the partnership or corporations are partners in X or shareholders in A, B, or C. Under constructive ownership rules for Sec. 302 stock redemptions, what percentage of stock is R considered to own?

A. 54%

Danny owns 35% of Batch Corporation's only class of stock outstanding. His daughter Ann and son-in-law Tony each own 20%. Ann is legally separated from Tony. Danny's father owns 25% of Batch's outstanding stock. What is Ann's percentage of stock ownership under the attribution rules for stock redemption?

A. 55%

Alpha Properties is owned by three shareholders. During the current year, Alpha reported the following: Rental income $200,000 Dividend income 20,000 Depreciation expense 40,000 Property taxes 10,000 Interest expense on mortgage on rental property 50,000 Alpha's adjusted ordinary gross income (AOGI) and personal holding company income (PHCI) are

A. AOGI, $120,000; PHCI, $20,000.

Which one of the following statements about a controlled group of corporations is false?

A. Any controlled group may elect to file consolidated federal income tax returns.

A distribution of taxable stock rights or dividends generally is treated the same as

A. Any other property distribution, and the holding period begins on the day after the distribution date.

The accumulated earnings tax

A. Can be avoided by sufficient dividend distributions.

A corporation was completely liquidated and dissolved during the current year. The filing fees, professional fees, and other expenditures incurred in connection with the liquidation and dissolution are

A. Deductible in full by the dissolved corporation.

How does a noncorporate shareholder treat the gain on a redemption of stock that qualifies as a partial liquidation of the distributing corporation?

A. Entirely as capital gain.

Which of the following corporations is considered to be an "includible corporation" in an affiliated group of corporations?

A. Holding company.

In January of the current year, Joan Hill bought one share of Orban Corporation stock for $300. On March 1 of this year, Orban distributed one share of a new class of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1 of this year, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. The holding period for the preferred stock starts in

A. January of the current year.

T, an individual shareholder, owned 25% of the Towne Corporation stock. Pursuant to a series of stock redemptions, Towne redeemed 10% of the shares of stock T owned in exchange for land having a fair market value of $30,000 and an adjusted basis of $10,000. T's basis for all of his Towne stock was $200,000. T reported the redemption transaction as if it were a dividend. T's basis in the land and his Towne stock (immediately after the redemption) is

A. Land, $30,000; stock, $200,000.

The M and M Partnership made a current distribution to Mac, a partner owning 50% of the partnership, of land with a fair market value of $6,000 (adjusted basis of $4,000) and a building with a fair market value of $100,000 (adjusted basis $40,000). This distribution was proportionate with respect to unrealized receivables and substantially appreciated inventory. The building had Sec. 1250 recapture potential of $55,000. What is the tax effect of this distribution on M and M?

A. No gain or loss.

The only class of outstanding stock of Corporations L, M, N, O, and P is owned by the following unrelated individuals: Corporations/Percent of Stock Owned Individual L M N O P G 30% 40% 50% 50% 5% H 10% 5% 10% 20% 5% I 30% 40% 30% 10% 5% J 30% 15% 10% 20% 5% K -0- -0- -0- -0- 5% Which of the following corporations are members of a brother-sister controlled group?

A. Only L, M, N, and O.

All of the following are characteristics of the simplified audit procedures for electing large partnerships except

A. Partnership adjustments generally will flow through to the partners for the year to which the adjustment relates.

Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?

A. Stock redemption.

All of the following are requirements for a distribution to be treated as a partial liquidation of a corporation except

A. The distribution is not essentially equivalent to a dividend that is determined at the shareholder level rather than at the corporate level.

Select the answer that best describes what happens when shareholders receive a series of distributions, not part of an installment obligation, covering 2 or more consecutive tax years in redemption of all of the stock of a corporation pursuant to a plan intended to result in the complete liquidation of the corporation.

A. The shareholders will be allowed to recover their respective basis in the stock before recognizing any gains.

L, M, and N formed an equal general partnership in January of the current year, each contributing $1,000 cash and each actively participating in the business. Although the partnership is engaged in real estate rental activities, it does not qualify as a real property trade or business. The partnership uses the cash method of accounting. The partnership purchased real property for $100,000, paying $3,000 in cash and giving a $97,000 nonrecourse note for which none of the partners is personally liable and which is not qualified real estate nonrecourse financing. The partnership incurred an operating loss of $15,000 for the year. Each partner has adjusted gross income from other activities of approximately $75,000 and no other passive losses. What is each partner's deductible share of the loss?

B. $1,000

XYZ, a calendar-year corporation, had accumulated earnings and profits of $5,000 as of January 1 of the current year. XYZ's earnings and profits for the year were $8,000. During the year, XYZ distributed one stock right for each of the 10,000 outstanding shares of its only class of stock. The fair market value of each stock right was $15. The corporation gave shareholders the option of receiving the stock rights or cash. No other dividends were paid during the year. Ms. Y is a 10% shareholder and elects to receive the stock rights. What is the amount of the distribution that is includible in Ms. Y's current-year gross income?

B. $1,300

Individual Z contributed property with an adjusted basis of $1,000 and a fair market value of $100 to Alpha Corporation. Z owned 10% of Alpha. Individual T, who owned the remaining 90% of the Alpha stock, contributed $900 cash at the same time. The primary purpose of the contributions was to permit Z and Alpha to recognize losses during Alpha's pending liquidation. The following year, Alpha adopted a plan of complete liquidation. In computing the loss on making the liquidation distribution, Alpha's basis will be

B. $100

Dunn and Shaw are partners who share profits and losses equally. In the computation of the partnership's current-year book income of $100,000, guaranteed payments to partners totaling $60,000 and charitable contributions totaling $1,000 were treated as expenses. What amount should be reported as ordinary income on the partnership's current-year tax return?

B. $101,000

Core Corporation reported current earnings and profits of $250,000. It distributed a building with an adjusted basis to Core of $170,000 and a fair market value of $230,000, to its sole shareholder. The building had a mortgage of $90,000, which the shareholder will assume. What is the amount of the dividend received by the shareholder?

B. $140,000

On April 1 of the current year, Stan Corporation bought 1,000 shares (30%) of Lee Corporation common stock for $40,000. On August 1 of the same year, Stan received a $7,000 cash distribution that was a dividend on these shares. The fair market value of the shares on the ex-dividend date was $30,000. Stan claimed the full 80% dividends-received deduction. On November 1 of the same year, Stan sold the Lee stock to an unrelated third party for $50,000. What is Stan's gain on the sale?

B. $15,600

Corporation P distributed depreciable personal property having a fair market value of $7,500 to its shareholders. The property had an adjusted basis of $4,000 to the corporation. P had properly deducted $2,000 in depreciation on the property. What amount must Corporation P include in ordinary income under Sec. 1245 as a result of the distribution?

B. $2,000

G and H each contributed $25,000 to a newly formed partnership. The partnership agreement provides that G is entitled to a fixed annual salary of $10,000 without regard to the income of the partnership for managing the business. Any profit or loss after the deduction of G's salary is to be shared equally between the two partners. The first year's operation resulted in a loss of $15,000 after G's salary was deducted. What amount of net income or loss from the partnership should G report on his individual income tax return assuming he is a material participant in the partnership's business?

B. $2,500 income.

Corporation W, which uses the accrual method of accounting, had earnings and profits of $95,000 on December 31, Year 1. Based on the following information, compute earnings and profits as of December 31, Year 2: Taxable income per return $185,000 Contributions in excess of 10% limitation 1,500 Interest paid for tax-exempt bonds 1,000 Tax-exempt interest received 3,000 Federal income taxes 55,400 MACRS depreciation from post-1986 property acquisitions on return in excess of straight-line alternative depreciation system 1,500

B. $226,600

Able Corporation and Baker Corporation file a consolidated return on a calendar-year basis. Last year, Able sold land to Baker for its fair market value of $50,000. At the date of sale, Able had an adjusted basis in the land of $35,000 and had held the land for several years as an investment. Baker held the land primarily for sale to its customers in the ordinary course of its business and sold it to a customer early this year for $60,000. As a result of the sale of the land this year, the corporations should report on their consolidated return

B. $25,000 ordinary income.

Seven years ago, Mr. X purchased stock in Corporation Y for $5,000. Five years ago, he received a distribution of $1,200, when Corporation Y had no current or accumulated earnings and profits. This year, Mr. X received a $400 dividend, when Corporation Y had earnings and profits in excess of its dividend distribution. There has been no other distribution activity on this stock. What is Mr. X's basis in his stock of Corporation Y as of December 31 of this year?

B. $3,800

Net Corporation has owned 70% of Cable Corporation's single class of stock since April 1 of last year. Net Corporation's basis is $50,000 for the Cable stock. On December 31 of the current year, Net received a $100,000 cash distribution from Cable Corporation. The Net stock was worth $400,000 on the distribution date. In the current year, what amount of gain must Net Corporation recognize from receiving the distribution?

B. $30,000

On January 2 of the current year, Mrs. W sold 50% of her business to her daughter Leigh. The resulting partnership had a profit of $100,000 for the tax year, and capital is a material income-producing factor. Mrs. W performed services for which $40,000 was reasonable compensation. Leigh performed no services. What is the maximum amount of income Leigh can report from the partnership for the year?

B. $30,000

Dahl Corporation was organized and commenced operations 75 years ago. At December 31 of the current year, Dahl had accumulated earnings and profits of $9,000 before a dividend declaration and distribution. On December 31, Dahl distributed cash of $9,000 and a vacant parcel of land to Mr. Green, Dahl's only shareholder. At the date of distribution, the land had a basis of $5,000 and a fair market value of $40,000. What was Mr. Green's taxable dividend income in the current year from these distributions assuming a 35% corporate tax rate?

B. $31,750

Meal Corporation distributes all of the stock of its wholly owned subsidiary, Big Sub Corporation, to its shareholders in Year 1. Meal Corporation has a $50,000 basis in Big Sub. Big Sub's value on the distribution date is $100,000. In Year 2, Detroit Corporation, an unrelated corporation, purchases 51% of Big Sub stock from Meal Corporation's shareholders for cash. What amount of gain must Meal Corporation recognize on the distribution of the stock in Year 1?

B. $50,000

Krol Corporation distributed marketable securities in redemption of its stock in a complete liquidation. On the date of distribution, these securities had a basis of $100,000 and a fair market value of $150,000. What gain does Krol have as a result of the distribution?

B. $50,000 capital gain.

Borasco Corp. owns land with a fair market value of $200,000. Borasco purchased the land 10 years ago for $65,000 and owes a liability of $50,000 as of August 2 of the current year. Alvo Corp. owns 100% of Borasco. Borasco is completely liquidated on August 2 of the current year, according to a plan adopted on June 18 of the current year. As a result, the land is transferred to Alvo in complete cancelation of Borasco's stock. What basis does Alvo have in the land it receives?

B. $65,000

In January of the current year, Martin and Louis formed a partnership with each contributing $75,000 cash. The partnership agreement provided that Martin would receive a guaranteed salary of $20,000 and that partnership profits and losses (computed after deducting Martin's salary) would be shared equally. For the first year ending December 31, the partnership's operations resulted in a loss of $18,000 after payment of Martin's salary. The partnership had no outstanding liabilities as of December 31. What is the amount of Martin's partnership basis as of December 31 of the current year?

B. $66,000

Orville Company had earnings and profits of $82,000 for the current year before distribution of dividends. On December 31 of the current year, the company distributed inventory with a fair market value of $16,000 and an adjusted basis of $12,000 as a dividend to its sole individual shareholder, Orville. The company values its inventory by the first-in, first-out method. Assume the corporate tax rate is 35%. What is the earnings and profits balance at the end of the current year?

B. $68,600

Ben has owned all 100 outstanding shares of N and M Corporation's stock for the past 10 years. Ben's basis for the stock is $50,000. N and M have earnings and profits of $100,000. The corporation redeemed 25 shares of Ben's stock for $75,000 in the current year. How will Ben report this?

B. $75,000 dividend

Nash and Ford are partners who share profits and losses equally. For the year ended December 31, the partnership had book income of $80,000, which included the following deductions: Guaranteed salaries to partners: Nash $35,000 Ford 25,000 Charitable contributions 5,000 What amount should be reported as ordinary income on the partnership return for the year?

B. $85,000

The following information pertains to land contributed by Pink for a 50% interest in a new partnership: Adjusted basis to Pink $100,000 Fair market value 300,000 Mortgage assumed by partnership 30,000 The partnership has no other liabilities. The basis for Pink's partnership interest is

B. $85,000

Which of the following is most likely to qualify as a guaranteed payment under Sec. 707(c)?

B. A and B contribute cash to their partnership as a capital contribution and agree that the partnership will pay them an 8% annual payment for the use of their capital. The partnership pays the annual amount.

The basis to a partner of property distributed "in kind" in complete liquidation of the partner's interest is the

B. Adjusted basis of the partner's interest reduced by any cash distributed to the partner in the same transaction

Which of the following statements correctly represents the tax effect of the liquidation of an 80% or more owned subsidiary?

B. Assets transferred to the parent of the liquidating corporation generally have a carryover basis.

Jeffrey, the sole proprietor of a hardware business, hired Eastwood on January 1, Year 1, for an agreed salary and a promise to give him a 25% ownership interest if he were still employed at the end of 3 years, and an additional 25% interest if he continued in the business for a second 3-year period. On January 1, Year 4, a partnership was formed and Eastwood received a 25% interest in the capital and profits of the business. On that date, the net worth of the partnership was $60,000. The partnership has no liabilities. What is Eastwood's tax basis of his partnership interest at January 1, Year 4, and what amount should be added to his gross income for Year 4?

B. Basis for Partnership Interest: $15,000 Addition to Gross Income: $15,000

In determining whether a corporation is subject to the accumulated earnings tax, which of the following items is not a subtraction in arriving at accumulated taxable income?

B. Capital loss carryback.

For federal income tax purposes, a partnership other than a publicly traded partnership is

B. Considered to be a nontaxable entity but must file an information return.

A group of six individuals organizes an LLC to conduct a software publishing business in Florida. No individual is specifically authorized to make the election. What individual(s) is(are) required to make the election?

B. Every member of the entity.

The holding period of property acquired by a partnership as a contribution to the contributing partner's capital account

B. Includes the period during which the property was held by the contributing partner.

Ten years ago, Mr. P purchased stock for $1,000. Last year, he received a return of capital of $800 and reduced the basis of his stock by that amount. This year, he received another return of capital that amounted to $300, which reduced the basis of his stock to zero. At no time did the corporation have earnings and profits. He would report the $100 that was in excess of his basis as

B. Long-term capital gain

Benson, a singer, owns 100% of the outstanding capital stock of Lund Corporation. Lund contracted with Benson, specifying that Benson was to perform personal services for Magda Productions, Inc., in consideration of which Benson was to receive $50,000 a year from Lund. Lund contracted with Magda, specifying that Benson was to perform personal services for Magda, in consideration of which Magda was to pay Lund $1 million a year. Personal holding company income will be attributable to

B. Lund only.

When a consolidated return is filed by an affiliated group of includible corporations connected from inception through the requisite stock ownership with a common parent,

B. Operating losses of one member of the group offset operating profits of other members of the group.

The accumulated earnings tax does not apply to

B. Personal holding companies.

A distribution of stock or stock rights is generally considered a dividend unless it is which of the following

B. Proportionate distribution.

Pursuant to a plan of reorganization adopted in the current year, Eagle Corporation exchanged property with an adjusted basis of $100,000 for 10,000 of the shares of the Hawkeye Corporation. The shares of Hawkeye had a fair market value of $120,000 on the date of the exchange. Eagle Corporation was liquidated shortly after the exchange, with its sole shareholder A receiving the Hawkeye shares. The sole shareholder A had a $110,000 basis in the Eagle shares surrendered. As a result of this exchange, A's recognized gain and her basis in the Hawkeye stock are as follows:

B. Recognized Gain: $0 Stock Basis: $110,000

Which of the following is a true statement with respect to a partnership electing, under Sec. 444, a fiscal year that is not normally required and for which a business purpose does not exist?

B. The election requires a payment to approximate the tax the partners would have paid if the partnership switched to its required year.

A partner's taxable income arising from the partner's interest in a partnership includes

B. The partner's share of partnership income, whether or not distributed to the partner during the year.

Which one of the following statements is true regarding the complete liquidation of a subsidiary corporation under Sec. 332?

B. The tax attributes of the subsidiary corporation carry over to the parent.

In January of the current year, Joan Hill bought one share of Orban Corporation stock for $300. On March 1 of this year, Orban distributed one share of a new class of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1 of this year, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. After the distribution of the preferred stock, Joan's bases for her Orban stocks are

B. common $225 preferred $75

Corporation Z had accumulated earnings and profits (E&P) of $75,000 as of January 1 of the current year. On April 1 of the same year, Z distributed $80,000 in cash to Ms. Jones, Corporation Z's sole shareholder. Corporation Z had a current E&P deficit of $76,000 for the year. Ms. Jones had an adjusted basis of $65,000 in her stock before the distribution. What is the amount of Corporation Z's current E&P on December 31 of the current year?

C. $(57,000)

Pursuant to a tax-free reorganization in the current year, Sandra Peel exchanged 100 shares of Lorna Corporation stock for 100 shares of Wood Corporation stock and, in addition, received $1,000 cash, which was not in excess of Peel's ratable share of Lorna's undistributed earnings and profits. Peel paid $20,000 for the Lorna stock 18 years ago. The Wood stock had a fair market value of $24,000 on the date of the exchange and represented a 5% interest in the outstanding Wood stock. What is the recognized gain to be reported by Peel in the current year?

C. $1,000 long-term capital gain.

On June 1 of the current year, Kelly received a 10% interest in Rock Co., a partnership, for services contributed to the partnership. Rock's net assets at that date had a basis of $70,000 and a fair market value of $100,000. In Kelly's current-year income tax return, what amount must Kelly include as income from the transfer of the partnership interest?

C. $10,000 ordinary income.

On July 1 of the current year, in connection with a recapitalization of Yorktown Corporation, Robert Moore exchanged 1,000 shares of stock, that cost him $95,000, for 1,000 shares of new stock worth $108,000 and bonds in the principal amount of $10,000 with a fair market value of $10,500. What is the amount of Moore's recognized gain during the year?

C. $10,500

A, B, and C formed a calendar-year partnership. Profits and losses are to be shared equally. A contributed a building to be used in the business that had an adjusted basis to A of $100,000 and a fair market value of $130,000. The partnership also assumed A's $60,000 mortgage on the building. B and C each contributed $40,000 in cash to the partnership's capital. What is the partnership's basis for determining depreciation on the building?

C. $100,000

T, a calendar-year corporation that began doing business 10 years ago, had $35,000 in accumulated earnings and profits on January 1 of this year. T had an operating loss of $60,000 for the first 6 months of this year but had $10,000 in earnings and profits for the entire year. T made a distribution of $25,000 cash to its shareholders on April 1 this year. What is the amount of T's accumulated earnings and profits at the close of business on December 31?

C. $20,000

Ann owned two blocks of Lou Corporation stock, which had the following characteristics: Block Shares Acquired Basis 1 200 1/1/Year 1 $20,000 2 50 7/2/Year 2 12,500 Ann's two blocks of stock combined represented 10% of Lou Corporation's outstanding stock. Pursuant to Lou's complete liquidation, Ann received a $50,000 cash distribution on December 1, Year 2, in exchange for her 250 shares. Lou's earnings and profits balance immediately before any liquidating distributions was $50,000. What are the amount and the character of Ann's gain or loss?

C. $20,000 long-term capital gain and $2,500 short-term capital loss.

Gilroy, a calendar-year taxpayer, is a long-time partner in the firm of Adams and Company, which has a fiscal year ending June 30. The partnership agreement provides for Gilroy to receive 25% of the ordinary income of the partnership. Gilroy also receives a guaranteed payment of $1,000 monthly, which is deductible by the partnership. The partnership reported ordinary income of $88,000 for the year ended June 30, Year 2, and $132,000 for the year ended June 30, Year 3. How much should Gilroy report on his Year 2 return as total income from the partnership?

C. $34,000

On December 1 of the current year, Alan Younger, a member of a three-man equal partnership, bought securities from the partnership for $27,000, their market value. The securities had been acquired by the partnership for $15,000 on August 1 of that same year. By what amount will this transaction increase Younger's taxable income for the year?

C. $4,000

CDH Partnership, a fiscal-year partnership, is equally owned by C, D, and H. The partnership reported net income of $120,000 for the tax year ending October 31, Year 1. Partner C, a calendar-year taxpayer, withdrew $25,000 from his capital account during the fiscal year. The partnership reported net income of $90,000 for the tax year ending October 31, Year 2. What is the amount of partnership income C must report on his Year 1 income tax return?

C. $40,000

Rambo Corporation owns, as an investment, 10% of the stock of Duntulum Corporation with a basis of $8,000 and a fair market value of $50,000. Rambo uses the Duntulum stock to redeem approximately 1%, or $10,000 par value, of its own outstanding stock from unrelated, noncorporate shareholders. As a result of this transaction, Rambo must report

C. $42,000 gain.

Corporation T, with earnings and profits of $60,000, distributed cash of $20,000 and property with a fair market value of $25,000 and an adjusted basis of $30,000 to its corporate shareholders. What is the amount of the distribution received by the shareholders?

C. $45,000

Dale's distributive share of income from the calendar-year partnership of Dale & Eck was $50,000 in Year 1. On December 15, Year 1, Dale, who is a cash-basis taxpayer, received a $27,000 distribution of the partnership's Year 1 income, with the $23,000 balance paid to Dale in May of Year 2. In addition, Dale received a $10,000 interest-free loan from the partnership in Year 1. This $10,000 is to be offset against Dale's share of Year 2 partnership income. What total amount of partnership income is taxable to Dale in Year 1?

C. $50,000

Ralph Elin contributed land to the partnership of Anduz & Elin. Elin's adjusted basis in this land was $50,000, and its fair market value was $75,000. Under the partnership agreement, Elin's capital account was credited with the full fair market value of the land. Anduz made a $75,000 cash contribution to the partnership. Thus, each partner's capital account was credited for $75,000. Elin and Anduz share profits and losses equally. The partnership has no liabilities. What is the adjusted basis of Elin's partnership interest?

C. $50,000

Sam and Terry formed the ST Partnership as equal partners on July 15 of the current year. As part of the formation, Sam contributed land with a basis to him of $70,000 and a fair market value of $200,000, and Terry contributed property with a basis equal to its $100,000 fair market value. On July 16 of the current year, the partnership mortgaged the land for $150,000 and distributed $100,000 cash to Sam. How much gain (loss) should Sam recognize from these transactions?

C. $65,000

Corporation A sold equipment used in its business to its sole shareholder Mr. B for $13,000. On the date of the sale, the fair market value of the equipment was $16,000, and A's adjusted basis was $11,000. Corporation A also canceled a $4,000 debt of Mr. B. What is the amount of the dividend received by Mr. B, assuming Corporation A has a large amount of earnings and profits?

C. $7,000

During the current year, Fiddle Corporation made the following distribution to an individual shareholder who owns 40% of Fiddle's only class of stock: Cash $20,000 Real estate: Adjusted basis to Fiddle 75,000 Fair market value 85,000 Subject to a mortgage of 15,000 The shareholder assumed the $15,000 mortgage on the property. Fiddle had earnings and profits of $70,000 prior to the distribution. The real estate is Sec. 1245 property to Fiddle. Assume a 35% corporate tax rate. What is the "net" adjustment to be made to the earnings and profits account due to this distribution?

C. $70,000 decrease.

Eng contributed the following assets to a partnership in exchange for a 50% interest in the partnership's capital and profits: Cash $50,000 Equipment: Fair market value 35,000 Adjusted basis 25,000 The partnership has no liabilities. The basis for Eng's interest in the partnership is

C. $75,000

Corporation H has 1,000 shares of stock outstanding. Mr. K, the founder, owns 40% of the stock, his wife owns 10%, his son owns 20%, and the balance is owned by unrelated parties. Under the constructive ownership rules of the stock redemption provisions, what percentage of stock is Mr. K considered to own?

C. 70%

Which taxable year may a newly formed partnership not adopt without obtaining prior approval from the IRS?

C. A January 31 year end if it is a retail enterprise with a natural business year ending January 31 and all of its majority and principal partners are on a calendar year.

For federal income tax purposes, all of the following statements regarding partnerships are true except

C. Co-ownership of property that is maintained and leased or rented is considered a partnership if the co-owners provide no services to the tenants.

Which one of the following methods is not acceptable to determine an arm's-length price on the sale of tangible property among a group of controlled entities (Sec. 482)?

C. Direct costing method.

Which of the following statements with respect to property contributed to a partnership is false?

C. Exchanges of partnership interests generally qualify for nontaxable treatment as exchanges of like-kind property.

Shale Corporation made two liquidating distributions of $1,000, on January 9, Year 1, and February 13, Year 1, to shareholder Patricia. Shale must file Form 1099-DIV, Dividends and Distributions, with the Internal Revenue Service by

C. February 28, Year 2.

In the computation of the ordinary income of a partnership, a deduction is allowed for

C. Guaranteed payments to partners.

When passive investment income is involved, the personal holding company tax may be imposed

C. If more than 50% of the company is owned by five or fewer individuals

With respect to a partner who sells or exchanges his entire interest in a partnership, the closing of the partnership year occurs

C. On the date of the sale or exchange.

With regard to corporate reorganizations, which one of the following statements is true?

C. Securities in corporations not parties to a reorganization are always "boot."

The personal holding company tax

C. Should be self-assessed by filing a separate schedule with the regular tax return.

For a domestic corporation, the general business tax credit is limited to the lesser of (1) its net income tax, with certain adjustments for other credits, over the greater of its tentative minimum tax for the year or (2) 25% of its net regular tax liability for the year that exceeds $25,000. How does a controlled group of corporations treat the $25,000?

C. The $25,000 is divided among the corporations in any manner they choose.

Margaret Corporation, which had one shareholder, had suffered losses in its earlier years up through Year 11 but was profitable in Year 12. Margaret Corporation has current earnings and profits for the Year 12 tax year of $15,000 and accumulated earnings and profits for prior years of $(14,000). An IRS audit of Year 12 determined that the shareholder benefited from constructive dividends from personal use of corporate vehicles and equipment. The amount agreed on for the constructive dividend was $12,000. There were no other dividends or distributions. Which of the following is true?

C. The constructive dividend is fully taxable

All of the following are true with respect to the filing of consolidated tax returns except that

C. The filing of consolidated returns is available to brother-sister corporations.

Rose Corporation, a calendar-year corporation, had accumulated earnings and profits of $40,000 as of January 1, Year 1. However, for the first 6 months of Year 1, Rose Corporation had an operating loss of $36,000 and finished the year with a total net operating loss for tax Year 1 of $55,000. Rose Corporation distributed $15,000 to its shareholders on July 1, Year 1. Which of the following is true?

C. The part of the distribution that is taxable is $12,500.

Which of the following statements is false with respect to partnership agreements?

C. The partnership agreement can be modified for a particular tax year after the close of the year, but not later than the date for filing the partnership return for that year, including extensions.

All of the following statements regarding stock redemptions are true except

C. The stock that is redeemed by a corporation may not be held as treasury stock.

Turbo Corporation distributed land to shareholder Lea in partial liquidation of her interest. At the time of the distribution, the land had an adjusted basis of $80,000 and a fair market value of $125,000. Lea exchanged 90 of 100 shares of Turbo stock for the land. At the time of the partial liquidation, Lea's adjusted basis in the 90 shares was $60,000. Other unrelated shareholders of Turbo own a combined 150 shares outstanding. Just prior to the distribution, Turbo had earnings and profits of $150,000. What are the amounts and the character of income that Turbo Corporation and Lea must recognize on the partial liquidation?

C. Tubro: $45,000 capital gain Lea: $65,000 capital gain