1. Pepper, Inc., an S corporation, holds a $1 million balance in accumulated E&P. It reports sales revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. What is Pepper's passive income penalty tax payable, if any?

a. $24,537.

b. $0.

c. $116,842.

d. $380,000.

2. Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current (nonliquidating) distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000), and land (basis to the partnership of $40,000 and fair market value of $42,000). In addition, Mack's share of partnership debt decreased by $12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest (including debt share) following the distribution?

a. $40,000 basis in inventory; $40,000 basis in land, $86,000 basis in partnership.

b. $30,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.

c. $40,000 basis in inventory; $42,000 basis in land, $98,000 basis in partnership.

d. $30,000 basis in inventory; $40,000 basis in land, $98,000 basis in partnership.

e. $40,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.