Question Seven years ago, Eleanor

29 Jun Question Seven years ago, Eleanor

Question

Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer. In the current year, Blue Corporation ( E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that qualifies for sale or exchange treatment. With respect to the redemption, Eleanor will have a:

$140,000 dividend.

$260,000 dividend.

$140,000 capital gain.

$260,000 capital gain.

None of the above.

Question 2

Which of the following entity owners cannot participate in management of the entity?

A general partner in a general partnership.

A member of a limited liability company.

A partner in a limited liability partnership.

A limited partner in a limited liability limited partnership.

None of the above.

Question 3

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the year. In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss. Elk’s taxable income is:

$63,000.

$73,000.

$80,000.

$90,000.

None of the above.

Question 4

Which of the following statements is incorrect with respect to determining current E & P?

All tax-exempt income should be added back to taxable income.

Dividends received deductions should be added back to taxable income.

Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income.

Federal income tax refunds should be added back to taxable income.

None of the above statements are incorrect.

Question 5

Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?

The C corporation receives a preferential tax rate on the LTCG of $10,000.

The LLC must pay corporate tax on taxable income of $10,000.

Jordan must report $10,000 of LTCG on his tax return.

Rachel must report $10,000 of LTCG on her tax return.

None of the above.

Question 6

Fred and Ella are going to establish a business. They expect the business to be very successful in the long-run, but project losses of approximately $100,000 for each of the first five years. Due to potential environmental concerns, limited liability is a requisite for the owners. Which form of business entity should they select?

General partnership.

Limited partnership.

C corporation.

S corporation.

Any of the above should satisfy Fred and Ella.

Question 7

During 2013, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2012, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

Nutt recognizes a $1,000 LTCG.

Nutt’s stock basis will be $2,000.

Nutt’s ordinary income is $15,000.

Nutt’s return of capital is $11,000.

None of the above.

question 9

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations):

Adjusted
Fair Market

Basis
Value
Pink Corporation stock (held for investment)
$150,000
$120,000
Non-LIFO inventory
80,000
110,000

Warbler Corporation is not a member of a controlled group. As a result of the distribution:

The shareholders have dividend income of $200,000.

The shareholders have dividend income of $260,000.

Warbler has a recognized gain of $30,000 and a recognized loss of $30,000.

Warbler has no recognized gain or loss.

None of the above.

Question 10

Bev and Cabel each have 50% ownership in Finch Partnership. Bev’s partnership interest has a basis of $225,000. Finch’s taxable income for the current year is $100,000, and it distributes $180,000 to each partner. Bev’s partnership interest basis at the end of the year is:

$0.

$45,000.

$95,000.

$100,000.

None of the above.

Question 11

Finch Corporation distributes property (basis of $225,000, fair market value of $300,000) to a shareholder in a distribution that is a qualifying stock redemption. The property is subject to a liability of $160,000, which the shareholder assumes. The basis of the property to the shareholder is:

$0.

$140,000.

$225,000.

$300,000.