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Exam 20: Corporations and Partnerships

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Question 1

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Drab Corporation,a calendar year and cash basis taxpayer,is formed in December 2012.In the same month,expenses are incurred as follows:

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Question 2

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In determining a partner's basis in the partnership interest,which of the following reflects a correct adjustment?

A) Add capital losses.
B) Subtract tax-exempt income.
C) Subtract for decrease in partnership liabilities.
D) Add partnership operating loss.
E) None of the above.

F) A) and E)
G) A) and C)

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Question 3

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If a partnership interest is received in exchange for services rendered,ordinary income must be recognized by the recipient of the capital interest.

Organizational expenditures do not include the costs of transferring assets to the new corporation.

Guaranteed payments are deductible by the partnership and are taxable to the partner receiving the payments.

The taxable income (or loss)of an S corporation is allocated to each shareholder on a per-share and per-day of stock ownership basis.

Qualified dividends received by a noncorporate shareholder cannot be taxed at a rate higher than 15% and can be taxed as low as 0%.

Because both are taxed at rates applicable to net long-term capital gain,it does not matter whether a stock redemption is treated as a sale or exchange or as a dividend.

In the case of a corporation,net long-term capital gains can be taxed at a rate as low as 15%.

Is there a logical explanation why S corporations are not allowed a dividends received deduction when computing taxable income?

In determining whether an entity is to be recognized as a corporation for Federal income tax purposes,classification under state law is not conclusive.

When forming a corporation under § 351,recognized gain is the greater of realized gain or the amount of boot received.

Snipe Corporation,a calendar year taxpayer,has total E & P of $800,000.During the current year,Snipe makes property distributions to Tracy (the sole shareholder) as follows: As a result of these distributions:

A partner's basis in the partnership interest is increased by his or her share of the tax-exempt income received by the partnership.

Cerulean Corporation owns 6% of the stock in Auburn Corporation.During the year,Auburn received cash dividends of $800,000 from this investment.Determine Auburn Corporation's dividends received deduction based on the following assumptions:

If the basis of a partnership interest is exhausted,a partner cannot use loans made to the partnership to absorb excess losses.

Which of the following,if any,correctly describe the status or nature of limited liability companies?

A corporation's election to forego a net operating loss carryback is revocable and can later be changed.

Rowena is the sole shareholder of Rail,a calendar year C corporation.As of January 1,2012,Rail had a $300,000 deficit in accumulated E & P.For 2012,it had current E & P of $110,000 and distributed to Rowena a cash dividend of $170,000.As of January 1,2012,Rowena has a basis in her Rail stock of $40,000.

Property distributions to shareholders can result in the distributing corporation recognizing gains but not losses.