Question 1. Matt has three passive activities and has at-risk amount

1. Matt has three passive activities and has at-risk amounts in excess of $100,000 for each. During the year, the activities produced the following income (losses).

Matt’s suspended losses are as follows:

a. $25,000 is allocated to C; $0 to A and B.

b. $12,500 is allocated to A; $12,500 to B.

c. $15,000 is allocated to A; $10,000 to B.

d. $8,333 is allocated to A, B, and C.

e. None of the above.

2. Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year. In addition, Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago. Consider the following two statements:

(1) Green’s current deduction for passive losses is $50,000 if it is a closely held C corporation that

is not a personal service corporation.

(2) Green’s current deduction for passive losses is $0 if it is a personal service corporation.

Which of the following answers is correct?

a. Only statement 1.

b. Only statement 2.

c. Both statements 1 and 2.

d. Neither statement 1 or 2.

e. None of the above.

3. White Corporation, a closely held personal service corporation, has $150,000 of passive losses, $120,000 of active business income, and $30,000 of portfolio income. How much of the passive loss can White Corporation deduct?

a. $0.

b. $30,000.

c. $120,000.

d. $150,000.

e. None of the above.

4. Charles owns a business with two separate departments. Department A produces $100,000 of income and Department B incurs a $60,000 loss. Charles participates for 550 hours in Department A and 100 hours in Department B. He has full-time employees in both departments.

a. If Charles elects to treat both departments as a single activity, he cannot offset the $60,000 loss against the $100,000 income.

b. Charles may not treat Department A and Department B as separate activities because they are parts of one business.

c. If Charles elects to treat the two departments as separate activities, he can offset the $60,000 loss against the $100,000 income.

d. If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the

$100,000 income.

e. None of the above.

5. Tara owns a shoe store and a bookstore. Both businesses are operated in a mall. She also owns a restaurant across the street and a jewelry store several blocks away.

a. All four businesses can be treated as a single activity if Tara elects to do so.

b. Only the shoe store and bookstore can be treated as a single activity, the restaurant must be treated as a separate activity, and the jewelry store must be treated as a separate activity.

c. The shoe store, bookstore, and restaurant can be treated as a single activity, and the jewelry store must be treated as a separate activity.

d. All four businesses must be treated as separate activities.

e. None of the above.

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