Question 1

Guaranteed payments are not deductible by the partnership in arriving at partnership ordinary income but are included in the receiving partner's income.

Accepted Answer

The answer of Guaranteed payments are not deductible by the...

Question 2

To receive S corporation treatment,a qualifying shareholder must be an individual,partnership,estate,qualifying trust,or certain kinds of tax-exempt organizations.

Accepted Answer

The answer of To receive S corporation treatment,a qualifying shareholder...

Question 3

A liquidating distribution is treated as a sale or exchange of a partnership interest.

Accepted Answer

When a partnership distributes assets during its liquidation, the partners are treated as selling their partnership interests back to the partnership. Therefore, the partners will recognize any gain or loss on the liquidating distribution as if they had sold their partnership interest in a taxable transaction.

Question 4

Ordinary income may result if a partnership has unrealized receivables or inventory items when a partnership interest is sold.

Accepted Answer

When a partner sells their interest in a partnership, any gain from the sale may be treated as ordinary income if the partnership has unrealized receivables or inventory items. This is governed by IRC Section 751.

Question 5

A partnership's liabilities have increased by year-end.Partners' bases in their partnership interests will increase.

Accepted Answer

The answer of A partnership's liabilities have increased by year-end.Partners'...

Question 6

Losses are disallowed on sales or exchanges between a partner and the partnership if the partner owns directly or indirectly more than a 50% interest in the capital or profits.

Accepted Answer

This is known as the "related party loss disallowance rule" and is outlined in IRC Section 267(a)(1).

Question 7

Gains on sales or exchanges between a partner and the partnership are treated as ordinary income if the partner owns more than a 50% interest in the capital or profits and the asset that is exchanged is not a capital asset in the transferee's hands.

Accepted Answer

This statement is true according to the IRS regulations. Gain on sales or exchanges between a partner and the partnership will be treated as ordinary income if the partner owns more than 50% of the interest in the capital or profits of the partnership and asset that is being exchanged is not treated as capital asset in the transferee's hand.

Question 8

A partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

Accepted Answer

According to IRS regulations, a partnership may elect to use a fiscal year if the business recognizes 25% or more of its annual gross receipts in the last two months of the fiscal year for three consecutive 12-month periods.

Question 9

A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.

Accepted Answer

According to the IRS rules, a partnership is required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital. This is known as the “tax year of the majority partner” rule.

Question 10

Separately stated items are allocated to the S corporation shareholders based on the number of shares of stock owned on the last day of the S corporation's taxable year.

Accepted Answer

The answer of Separately stated items are allocated to the...

Question 11

A nonliquidating distribution of cash or property from the partnership to a partner is generally treated as a tax-free return of capital to the extent of a partner's basis.

Accepted Answer

A nonliquidating distribution of cash or property from the partnership to a partner is generally treated as a tax-free return of capital to the extent of a partner's basis. This means that the partner will not recognize any gain or loss on the distribution, and their basis in the partnership will be reduced by the amount of the distribution. However, if the distribution exceeds the partner's basis, then the excess will be treated as a taxable gain to the partner.

Question 12

Ordinary losses and separately stated deduction and loss items that exceed a partner's basis carry over indefinitely until the partner has a positive partnership basis.

Accepted Answer

This statement is true. If a partner's share of partnership losses and separately stated deduction and loss items exceeds their basis in the partnership, the excess amount will carry over indefinitely until the partner restores their basis to a positive amount. This means that the partner can use the excess amount to offset future partnership income or gain once they have sufficient basis.

Question 13

S status can be elected if 50% of all shareholders consent to the S corporation election on the date of the S corporation election.

Accepted Answer

All shareholders who own stock on the date the S election is filed must consent to the election.

Question 14

A shareholder's basis for the S corporation stock is adjusted for ordinary income or loss and separately stated items that flow through to the shareholders as well as for additional capital contributions by shareholders and distributions to shareholders.

Accepted Answer

Shareholder's basis for S corporation stock is adjusted for ordinary income or loss and separately stated items that flow through to shareholders as well as for additional capital contributions by shareholders and distributions to shareholders.

Question 15

Members of a single family may be counted as one shareholder for S corporation purposes.

Accepted Answer

According to IRS rules, family members can be treated as one shareholder for S corporation purposes if they are part of a single family. This can include spouses, children, grandchildren, parents, grandparents, siblings, and their respective spouses.

Question 16

An S corporation may not have more than 75 shareholders.

Accepted Answer

The answer of An S corporation may not have more...

Question 17

Voluntary revocation of an S corporation election is permitted only if consent is obtained from all shareholders.

Accepted Answer

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Question 18

If partners having a majority interest in the partnership do not have the same tax year,the partnership uses the same tax year as all of its principal partners-those with 10% or greater interest in the partnership.

Accepted Answer

The answer of If partners having a majority interest in...

Question 19

An accounting partnership can become an electing large partnership as long as it has at least 100 partners and files the appropriate election.

Accepted Answer

The answer of An accounting partnership can become an electing...

Question 20

An S corporation can have both voting and nonvoting common stock as long as the shares of stock have identical rights to share in the profits and assets of the corporation.

Accepted Answer

An S corporation can have both voting and nonvoting common stock as long as the shares of stock have identical rights to share in the profits and assets of the corporation. This is known as the "one class of stock" rule.

Quiz 17: Partnerships and S Corporations