A sole shareholder's initial investment in an S corporation's stock was $30,000 and no increases in basis have occurred since. Losses incurred since inception of the corporation have totaled $50,000. The stockholder sold the stock for $20,000 in the current year. What is the amount and character of the shareholder's gain or loss on the stock sale? A. $10,000 capital loss. B. No gain and no loss. C. $20,000 capital gain. D. $20,000 ordinary gain. Key: C

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Alpha, a C corporation, is the parent of a consolidated tax group that includes its two wholly owned subsidiaries, Beta and Delta, also C corporations. Beta and Delta each own 45% of a limited liability company, Fox. Alpha licenses technology to Fox and charges a royalty for the use of the technology. Upon tax audit, the IRS increased Alpha's royalty income gained from the technology licensing from $1 million to $1.5 million for the tax year. Which of the following impacts, if any, will this adjustment have on Alpha and its subsidiaries' taxable income? A. $450,000 decrease. B. $50,000 increase. C. $500,000 increase. D. No impact. Key: B

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A taxpayer participated in two separate business activities. Business A is the taxpayer's principal business in whose day-to-day operations the taxpayer is regularly involved. The taxpayer did not materially participate in Business B. The taxpayer had the following income (loss) and deductions in the tax year: What is the amount of total losses from passive activities for the year that will be carried forward for future use? A. $2,500 B. $4,700 $8,000 D. $10,500