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.