1.An S corporation's ordinary business income is taxed in the following way:

The S corporation pays tax on the S corporation's ordinary business income.

All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders do not pay self-employment tax on all S corporation ordinary business income.

All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders must also pay self-employment tax on all S corporation ordinary business income.

The S corporation income is always considered self-employment income to each of the shareholders and the shareholders only pay self-employment tax on the S corporation's ordinary business income. Shareholders are not required to pay income tax on their share of S corporation's ordinary business income received.

2. A taxpayer who receives a Schedule K-1 (Form 1041) typically:

Is the beneficiary of a decedent's trust.

Is an individual who owns shares of common stock but does not participate in the corporation.

Holds an interest in a partnership or is a member of an LLC filing as a partnership.

Is drawing income from the partnership that is always self-employment income.

3. On March 1, John contributed $5,500 for a 10% interest in the general partnership, Tya's Kites. Tya's Kites took out a loan for $10,000 on May 15. John's distributive share for the year was $3,800. What is his ending basis in the partnership?

$6,880

$9,300

$10,300

$19,300

4. Which of the following is NOT an item that increases the basis of a shareholder's S corporation stock?

A .Ordinary income of the S corporation that is allocated to the shareholder.

A net operating loss (NOL) of the S corporation that is allocated to the shareholder.

A recapture of the 179 depreciation expense.

Separately stated items of income and gain from the S corporation.

5.What is the correct order in which the three limitations on potential losses must be applied?

First at-risk limitation, second basis limitation, and last, passive activity limitation.

First passive activity limitation, second basis limitation, and last, at-risk limitation.

First basis limitation, second passive activity limitation, and last, at-risk limitation.

First basis limitation, second at-risk limitation, and last, passive activity limitation.

6.

Jenny Miller is single and has a modified AGI of $63,000. She has income of $6,000 from a limited partnership in which she does not materially participate, and she has a loss of $8,000 from active participant rental real estate activities. What is the amount of passive activity losses allowed in 2016?

	$0
	$2,000
	$6,000
	$8,000