TAX Final T/F
A capital loss allocated to a shareholder always reduces the Other Adjustments Account.
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A distribution from OAA is taxable.
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A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.
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A limited partnership (LP) offers all partners protection from claims by the LP's creditors.
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A newly formed S corporation does not receive any tax benefit from an NOL incurred in its first tax year.
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A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.
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An S corporation can claim a deduction for its NOL carryovers.
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An S corporation cannot be a shareholder in another corporation.
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An S corporation cannot incur a tax liability at the corporation level.
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An S corporation may not amortize its organization expenses.
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An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.
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An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.
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An S shareholder's stock basis can be reduced below zero.
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An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.
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Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to S stock during a post-termination transition period of approximately one year is applied against and reduces the basis of the S stock.
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Ashley purchased her partnership interest from Lindsey on the first day of the current year for $40,000 cash. She received a $10,000 cash distribution from the partnership during the year, and her share of partnership income is $15,000. Her share of partnership liabilities on the last day of the partnership year is $20,000. Ashley's outside basis for her partnership interest at the end of the year is $45,000.
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Depreciation recapture income is a Schedule K item on the Form 1120S.
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Distributions of appreciated property by an S corporation are not taxable to the entity.
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Form 1120S provides an S shareholder's computation of his or her stock basis.
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George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP, LLC (not a publicly-traded partnership interest). The future profits of the partnership are subject to normal operating risks. George will report ordinary income equal to the fair market value of the profits interest, but the capital interest will not be currently taxed to him.
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Harry's basis in his partnership interest was $10,000 at the beginning of the tax year. For the year, his share of the partnership's loss was $8,000, and he also received a distribution of $4,000. Harry can deduct an $8,000 loss, and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.
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If a partnership allocates losses to the partners, the partners must first apply the passive loss limitations, then the basis limitation, and finally the at-risk limitations. If all three hurdles are met, the partner may deduct the loss.
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It is not beneficial for an S corporation to issue § 1244 stock.
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Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.
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JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs in 2016. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.
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Ken and Lars formed the equal KL Partnership during the current year, with Ken contributing $100,000 in cash and Lars contributing land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000). Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.
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Maria owns a 60% interest in the KLM Partnership. Four years ago her father gave her a parcel of land. The gift basis of the land to Maria is $60,000. In the current year, Maria had still not figured out how to use the land for her own personal or business use; consequently, she sold the land to the partnership for $50,000. The partnership immediately started using the land as a parking lot for its employees. Maria may recognize her $10,000 loss on the sale.
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Morgan and Kristen formed an equal partnership on August 1 of the current year. Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000. Kristen contributed equipment with a basis of $42,000 and a value of $100,000. Kristen and Morgan each have a basis of $100,000 in their partnership interests.
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Most limited liability partnerships can own stock in an S corporation.
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NOL carryovers from C years can be used in an S corporation year against ordinary income.
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Only 51% of the shareholders must consent to an S election.
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Partners' capital accounts should be determined using the same method on Form 1065 Schedule L, Form 1065 Schedule M-2, and the Schedules K-1 prepared for the partners.
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Post-termination distributions that are charged against OAA are received tax-free.
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S corporations are treated as partnerships under state property laws.
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Seven years ago, Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years. This year, when his adjusted basis in the property was $250,000, Paul transferred the property to the newly formed PLA LLC in exchange for a one-third interest in the LLC. PLA incurred $10,000 of transfer taxes and fees related to the property. PLA must treat the $260,000 basis in the property, fees, and expenses, as new MACRS property depreciable over 27.5 years.
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Tax-exempt income at the S corporation level flows through as taxable to the shareholder.
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Tax-exempt income is not separately stated on Schedule K of Form 1120S.
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The "inside basis" is defined as a partner's basis in the partnership interest.
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The JPM Partnership is a US-based manufacturing company. JPM calculates the domestic production activities deduction (§ 199) and deducts that amount on its Form 1065.
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The LIFO recapture tax is a variation of the passive investment income penalty tax.
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The Schedule M-3 is the same for a C corporation and an S corporation.
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The carryover period for the NOLs of a C corporation does not continue to run during S corporation years.
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The partnership reports each partner's share of income to the partner on a Form 1099-MISC.
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The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.
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The sum of the partners' ending basis amounts on all Schedules K-1 equals the partners' ending capital account balance shown on the partnership's Schedule L.
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The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation.
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William is a general partner in the WST partnership. During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000. William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.
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A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.
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A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.
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A per-day, per-share allocation of flow-through S corporation items must be used, unless the shareholder disposes of the entire interest in the entity.
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All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations.
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An S corporation does not recognize a loss when distributing assets that are worth less than their basis.
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An S corporation that has total assets of at least $50 million on Schedule L at the end of the tax year must file a Schedule M-3.
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An S election is made on the shareholder's Form 2553.
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An S shareholder who dies during the S corporation tax year must report his or her share of the pro rata income (loss) items up to the date of death, on the final individual tax return.
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An S shareholder's basis is decreased by distributions treated as being paid from AAA.
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An S shareholder's basis is increased by stock purchases and capital contributions.
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An S shareholder's stock basis does not include a ratable share of S corporation liabilities.
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An estate may be a shareholder of an S corporation.
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An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.
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An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as tax-exempt interest.
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Any distribution made by an S corporation during a tax year is taken into account before accounting for the year's losses.
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Any excess of S corporation losses or deductions over the shareholder's combined stock and debt basis is suspended until there is a subsequent stock or debt basis.
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Any losses that are suspended under the at-risk rules are carried forward and are available during an S corporation's post-termination period.
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Blaine contributes property valued at $50,000 (basis of $40,000) in exchange for a 25% interest in the BIKE Partnership. If the property is later sold for $70,000, gain of $15,000 will be allocated to Blaine.
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Compensation for services rendered to an S corporation is subject to FICA taxes.
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Emma's basis in her BBDE LLC interest is $60,000 at the beginning of the tax year. Her allocable share of LLC items are as follows: $20,000 of ordinary income, $2,000 tax-exempt interest income, and a $6,000 long-term capital gain. In addition, the LLC distributed $12,000 of cash to Emma during the year. Assuming the LLC had no liabilities at the beginning or the end of the year, Emma's ending basis in her LLC interest is $76,000.
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For a new corporation, a premature S election may not be effective.
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If a resident alien shareholder moves outside the U.S., the S election is terminated.
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If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.
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In a limited liability company, all members are protected from all debts of the partnership unless they personally guaranteed the debt.
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Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business. She contributes a parcel of this land (basis of $15,000) to a partnership, also to be held as inventory. The fair market value of the property is $12,000 at the contribution date. After three years, the partnership sells the land for $10,000. The partnership will recognize a $5,000 ordinary loss on sale of the property.
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Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.
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Most IRAs cannot own stock in an S corporation.
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One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner, regardless of whether or not distributed.
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Pass-through S corporation losses can reduce the basis in the shareholder's loan to the entity, but distributions do not reduce loan basis.
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Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election.
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S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).
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Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.
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Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.
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Syndication costs arise when partnership interests are being marketed to investors. These costs cannot be amortized or deducted.
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Tax-exempt income at the corporate level flows through as exempt to S shareholders.
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The Section 179 expense deduction is a Schedule K item on the Form 1120S.
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The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.
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The corporate-level tax on recognized built-in gains applies in 2016 when an S corporation disposes of an asset in a taxable disposition within ten years after the date on which the S election took effect.
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The passive investment income of an S corporation includes gains from the sale of securities.
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The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.
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The taxable income of a partnership flows through to the partners, who report the income on their tax returns.
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When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.
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Where the S corporation rules are silent, C corporation provisions apply.
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