In the current year, Anderson formed an equal partnership with Camilla. Anderson contributed land with an adjusted basis of $50,000 and a fair market value of $225,000. Anderson also contributed $75,000 cash to the partnership. Camilla contributed land with an adjusted basis of $105,000 and a fair market value of $240,000. The land contributed by Anderson was encumbered by a $60,000 nonrecourse debt. Assume the partners share debt equally. Immediately after the formation, the basis of Andersons partnership interest is:

a. $95,000.

b. $125,000.

c. $240,000.

d. $300,000.

e. None of the above.

Phyllis and Edith formed the Coral Partnership four years ago. Because they decided the company needed some expertise in computer networking, they offered Ophelia a 1/3 interest in partnership capital and profits if she would come to work for the partnership. On July 1 of the current year, the unrestricted partnership interest (fair market value of $50,000) was transferred to Ophelia. How should Ophelia treat the receipt of the partnership interest in the current year?

a. Nontaxable.

b. $50,000 of short-term capital gain.

c. $50,000 of long-term capital gain.

d. $50,000 of ordinary income.

e. None of the above.

Sandy and Teddy formed a partnership. Sandy received a 50% interest in partnership capital and profits in exchange for contributing land with a basis of $180,000 and a fair market value of $300,000. Teddy received a 50% interest in partnership capital and profits in exchange for contributing $300,000 of cash. Three years after the contribution date, the land contributed by Sandy is sold by the partnership to a third party for $380,000. How much taxable gain will Sandy recognize from the sale?

a. $100,000.

b. $120,000.

c. $160,000.

d. $200,000.

e. None of the above.

Monroe contributed $20,000 of cash in exchange for a 50% interest in the Salmon partnership capital and profits. During the first year of partnership operations, Salmon had net taxable income of $50,000. In addition Monroe received a $15,000 distribution of cash from the partnership and he has a 50% share in the $15,000 of partnership recourse liabilities on the last day of the partnership year. Monroes adjusted basis (outside basis) for his partnership interest at year-end is:

a. $78,000.

b. $45,000.

c. $37,500.

d. $30,000.

e. None of the above.

Rosie is a partner in the Cardinal Partnership, which is not publicly traded. Her allocable share of Cardinals passive ordinary losses from a nonrealty activity for the current year is ($100,000). Rosie has a $60,000 adjusted basis (outside basis) for her interest in Cardinal (before deduction of any of the passive losses). Her amount at risk under 465 is $45,000 (before deduction of any of the passive losses). She also has $30,000 of passive income from other sources. How much of the $100,000 passive loss allocated to her can Rosie deduct on her current years tax return?

a. $30,000

b. $45,000.

c. $60,000.

d. $100,000.

e. None of the above.

Kenneth receives a proportionate, nonliquidating distribution from the Fern Partnership. The distribution consists of $10,000 cash and property with an adjusted basis to the partnership of $40,000 and a fair market value of $58,000. Immediately before the distribution, Kenneth's adjusted basis for his partnership interest is $75,000. Kenneths basis in the noncash property received is:

a. $25,000.

b. $40,000.

c. $58,000.

d. $65,000.

e. None of the above.

Cody contributed nondepreciable property with a basis of $45,000 and a fair market value of $56,000 to the Laurel Partnership in 2010 in exchange for a 40% interest in the partnership. In 2013, he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $9,000 and a fair market value of $50,000. The basis in his partnership interest at the time of the distribution was $30,000. How much gain or loss does Cody recognize on the distribution? (Assume no other distributions have been made to Cody, the property he originally contributed is still owned by the partnership, and this is not a disguised sale transaction.)

a. $0 gain or loss.

b. $11,000 gain.

c. $20,000 gain.

d. $41,000 gain.

e. None of the above.

During 2013, an S corporation incurs the following transactions.

Net income from operations $60,000

Interest income from savings account 28,000

Long-term capital gain from sale of securities 54,000

Short-term capital loss from sale of securities 44,000

The corporation's passive investment income for 2013 is:

a. $28,000.

b. $38,000.

c. $82,000.

d. $142,000.

e. None of the above.

During 2013, Emerald Corporation incurs the following transactions.

Net income from operations $125,000

Long-term capital gain from sale of securities 55,000

Short-term capital loss from sale of securities 35,000

Emerald maintains a valid S election and does not distribute any dividends to its sole shareholder, Dakota. As a result, Dakota must recognize:

a. Ordinary income of $125,000 and long-term capital gain of $20,000.

b. Ordinary income of $125,000, long-term capital gain of $55,000, and $35,000 short-term capital loss.

c. Ordinary income of $125,000, long-term capital gain of $55,000, and $3,000 short-term capital loss.

d. Ordinary income of $125,000.

e. None of the above.

During the year, an S corporation incurs a $110,000 net operating loss. Eloise, the sole shareholder, has a $75,000 stock basis, and there is a $100,000 balance in AAA at the beginning of the year. Which statement is correct?

a. Eloise may show a $110,000 loss deduction on her Form 1040.

b. At the end of the year, there is a zero basis in both Eloises stock basis and the AAA.

c. At the end of the year, Eloise has a zero basis in the stock, and there is a negative $10,000 balance in the AAA.

d. Eloise may deduct $100,000 of the loss.

e. None of the above statements is correct.

Neon, Inc., a calendar year S corporation, has an operating loss of $160,000 and a long-term capital loss of $40,000. Archie, an individual, owns 40% of the corporate stock and has a $60,000 basis in the stock. What is the amount of the NOL that flows through to Archie?

a. $16,000.

b. $48,000.

c. $64,000.

d. $60,000.

e. None of the above.

Beginning in 2013, the AAA of Hunter, Inc., an S corporation, has a balance of $225,000. During the year, the following items occur.

Operating income	$172,000
Interest income	6,000
Dividend income	14,050
Municipal bond interest income	6,000
Long-term capital loss from sale of investment land	7,000
Charitable contributions	19,000
Cash distributions to shareholders	57,000

Hunters ending AAA balance is:

a. $353,150.

b. $334,050.

c. $327,650.

d. $326,750.

Apricot, Inc., has accumulated earnings and profits at the end of the year of $275,000. Apricot pays a salary and bonus of $200,000 to Donald, its CEO. Apricot's taxable income before the salary and bonus is $225,000. The IRS classifies $75,000 of the salary and bonus as unreasonable. Calculate Apricot's taxable income after the reclassification.

a. $25,000.

b. $100,000.

c. $125,000.

d. $225,000.

e. None of the above.

Gomez is the sole shareholder of Carrot, Inc. Carrot's taxable income before the payment of Gomez's salary is $200,000. Based on this, Gomez has the corporation pay him a salary of $175,000 and a bonus of $25,000. A reasonable salary and bonus would be $150,000. Which of the following is correct?

a. The taxable income of Carrot, Inc., is $0 ($200,000 - $200,000 salary and bonuses).

b. The taxable income of Carrot, Inc., is $25,000 ($200,000 - $175,000).

c. Gomez has salary and bonus income of $200,000.

d. Gomez has salary and bonus income of $150,000 and dividend income of $50,000.

e. None of the above.

Tangerine, Inc. has 2,000 shares of stock authorized and 1,000 shares outstanding. The shares are owned by Madison (700 shares) and Jessica (300 shares). Madison's adjusted basis for her stock is $100,000 and Jessica's adjusted basis for her stock is $50,000. Tangerine's earnings and profits are $100,000. Tangerine redeems 150 of Jessica's shares for $50,000. Determine the amount of Jessica's recognized gain (1) if she is Madison's mother and (2) if they are unrelated.

a. $0 and $0.

b. $50,000 and $50,000.

c. $50,000 and $-0-.

d. $50,000 and $25,000.

e. None of the above.

A taxpayer contributes property with an adjusted basis of $100,000 and a fair market value of $150,000 to her business entity. If the entity is a C corporation and the transaction qualifies under 351, the corporation's basis for the asset and the corporation shareholder's basis for her stock are:

Asset Basis Stock Basis

a. $100,000 $150,000

b. $150,000 $100,000

c. $100,000 $100,000

d. $150,000 $150,000

e. None of the above.

A taxpayer contributes property with an adjusted basis of $60,000 and a fair market value of $100,000 to his business entity. If the entity is an S corporation and the transaction qualifies under 351, the S corporation's basis for the asset and the shareholder's basis for his stock are:

Asset Basis Stock Basis

a. $60,000 $100,000

b. $100,000 $60,000

c. $60,000 $60,000

d. $100,000 $100,000

e. None of the above.

Shane contributes land with a fair market value of $450,000 and an adjusted basis of $400,000, and Gavin contributes $450,000 cash to form Shane & Gavin Company, a partnership. Shane and Gavin each own 50% of the partnership. One year later, Shane & Gavin, Inc. sells the land for $500,000. How much gain is recognized by each partner?

a. $100,000 to Shane, $0 to Gavin.

b. $75,000 to Shane, $25,000 to Gavin.

c. $50,000 to Shane, $50,000 to Gavin.

d. $25,000 to Shane, $25,000 to Gavin.

e. None of the above.

Citrine Corporation is subject to a corporate income tax only in State X. The starting point in computing X taxable income is Federal taxable income. Citrine's Federal taxable income is $400,000, which includes a $55,000 deduction for state income taxes. During the year, Citrine received $150,000 interest on Federal obligations and $65,000 of interest on State Z obligations. X does not allow a deduction for state income tax payments, but it does exclude interest earned on its own obligations.

Citrine's taxable income for X purposes is:

a. $315,000.

b. $370,000.

c. $410,000.

d. $510,000.

e. $520,000.

Harvest Corporation is subject to tax only in State A. Harvest generated the following income and deductions.

Federal taxable income $400,000

State A income tax expense 40,000

Depreciation allowed for Federal tax purposes 150,000

Depreciation allowed for state tax purposes 115,000

Federal taxable income is the starting point in computing State A taxable income and state income taxes are not deductible for state tax purposes. Harvest's State A taxable income is:

a. $365,000.

b. $400,000.

c. $440,000.

d. $475,000.

e. $505,000.