Question: Discuss the concepts of ordinary income and

> Zach contributed land with a FMV of $25,000 and a basis of $14,000 to a partnership on April 5, 2011. On June 6, 2017, the partnership distributed the land to Art, a partner in the same partnership. At distribution, the land had a FMV of $29,000. a. Wha

> Barbara is single and owns a home in the city, which is her primary residence. She also owns a cottage at the beach, which she treats as a vacation home. In April 2017, she borrowed $50,000 on a home equity loan and used the proceeds to pay off credit ca

> Arnold exercised an incentive stock option in 2014, acquiring 1,500 shares of stock at an option price of $80 per share. The FMV of the stock at the date of exercise was $110 per share. In 2016, the rights become freely transferable and are not subject t

> This year Robert had the following income and losses from four passive activities: Activity 1……………………………..$(20,000) Activity 2………………………………..(10,000) Activity 3………………………………….(5,000) Activity 4…………………………………..33,000 Activity 4 had $10,000 of passive losse

> Lewis owns 200 shares of stock in Modlin Corporation. His adjusted basis for the stock is $180,000. On December 15, 2017, he sells the stock for $170,000. He purchases 200 shares of Modlin Corporation stock on January 8, 2018, for $170,000. a. What are L

> Harold owns 130 shares of stock in Becker Corporation. His adjusted basis for the stock is $210,000. On December 15, 2017, he sells the stock for $180,000. He purchases 200 shares of Becker Corporation stock on January 12, 2018, for $195,000. a. What ar

> On January 1, 2017, Myron sells stock that has a $50,000 FMV on the date of the sale (basis $75,000) to his son Vernon. On October 21, 2017, Vernon sells the stock to an unrelated party. In each of the following, determine the tax consequences of these t

> Crystal owns 150 shares of Carson, Inc., stock that has an adjusted basis of $100,000. On December 18, 2017, she sells the 150 shares for FMV ($88,000). On January 7, 2018, she purchases 200 shares of Carson stock for $127,500. a. What are Crystal’s re

> An individual contributes property with a fair market value in excess of basis to a corporation in exchange for stock. What is the basis of the stock in the hands of the shareholder, and what is the basis of the property contributed in the hands of the c

> In 2015, Jerry acquired an interest in a partnership in which he is not a material participant. The partnership was profitable until 2016. Jerry’s basis in the partnership interest at the beginning of 2016 was $55,000. In 2016, his share of the partnersh

> Jackson invested $190,000 in a passive activity five years ago. On January 1, 2015, his at-risk amount in the activity was $45,000. His share of the income and losses in the activity were $52,000 loss in 2015, $20,000 loss in 2016, and $80,000 gain in 20

> Hunter has a $38,000 loss from an investment in a partnership in which he does not participate. His basis in the interest is $35,000. a. How much of the loss is disallowed by the at-risk rules? b. How much of the loss is disallowed by the passive loss

> Pedro sells investment land on September 1, 2017. Information pertaining to the sale follows: Adjusted basis …………………………………..$25,000 Selling price………………….…………………….90,000 Selling expenses……….……………………………1,500 Down payment…………………………………….12,000 Four installm

> Lucy has AGI of $120,000 before considering losses from some rental real estate she owns (she actively participates). She had the following losses from her rental property: Rental property 1……………………….$(22,000) Rental property 2…………………………..(5,000) a. Ho

> Jessica’s office building is destroyed by fire on November 15, 2017. The adjusted basis of the building is $410,000. She receives insurance proceeds of $550,000 on December 12, 2017. a. Calculate her realized and recognized gain or loss for the replace

> Indicate whether the property acquired qualifies as replacement property for each of the following involuntary conversions: a. The Harts’ personal residence is destroyed by a hurricane. They decide not to acquire a replacement residence but to invest the

> Bryan and Gayle are equal partners in BG Partnership. The partnership reports the following items of income and expense: Ordinary income from operations…………………$13,000 Interest income………………………………………………5,000 Long-term capital gains…………………………………23,00

> Christine died owning an interest in a passive activity property. The property had an adjusted basis of $210,000, a fair market value of $224,000, and suspended losses of $21,000. What can be deducted on her final income tax return?

> Moe, Johnny, and Raymond form a partnership and contribute the following assets: Johnny’s building has a mortgage of $60,000, which the partnership assumes. a. Do any of the partners recognize any gain? If so, how much and why? b. Wh

> In what instances could again be recorded associated with the issuance of stock upon formation of a corporation? Assume that the 80% test is met.

> LaRhonda owns an office building that has an adjusted basis of $45,000. The building is subject to a mortgage of $20,000. She transfers the building to Miguel in exchange for $15,000 cash and a warehouse with an FMV of $50,000. Miguel assumes the mortgag

> Viktor exchanges stock (adjusted basis $18,000, FMV $25,000) and real estate (adjusted basis $18,000, FMV $44,000) held for investment for other real estate to be held for investment. The real estate acquired in the exchange has an FMV of $67,000. a. W

> What is the basis of the new property in each of the following situations? Is any gain recognized in the following transactions? a. Rental house with an adjusted basis of $100,000 exchanged for personal-use river cottage with an FMV of $130,000. b. Gener

> On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest. She purchased the equipment three years ago. a. What is Patti’s basis in her partnership interest? b. What is Patti

> Carlton holds undeveloped land for investment. His adjusted basis in the land is $200,000, and the FMV is $325,000. On November 1, 2017, he exchanges this land for land owned by his son, who is 31 years old. The appraised value of his son’s land is $320,

> Is the §179 expense deduction allowed for partnerships? If so, is § 179 an ordinary income item or a separately stated item? Why?

> Discuss the tax basis calculation adjustment. Why is the gain or loss on the sale of depreciable assets different for AMT purposes than for regular tax purposes?

> Are the depreciation lives the same for AMT purposes as for regular tax purposes? If not, how are the lives determined for AMT?

> What happens in the following circumstances if a wife, prior to marriage, uses the exclusion on the sale of a residence and subsequently (after marriage) sells a second residence within two years? a. The new husband sells a residence; b. The new husband

> Discuss the AMT formula and how it relates to the regular income tax. Include in your discussion factors that cause AMT to be assessed.

> Explain the 80% rule as it pertains to the formation of a corporation.

> What information must be reported to the IRS concerning an involuntary conversion?

> How do the passive loss rules and the at-risk rules work in conjunction to limit losses?

> Discuss the rules concerning the $25,000 loss offset for rental activities. Why are losses of $25,000 allowed for some taxpayers?

> What are the differences between material participation, active participation, and significant participation?

> Often, when assets are exchanged, liabilities are assumed in the exchange. How does the assumption of liabilities in a like-kind exchange affect the gain or loss recognized? How does it affect the basis of an asset received in a like-kind exchange?

> How is the basis calculated in a like-kind exchange? How does the receipt of boot affect the basis of the asset received? How does the giving of boot affect the basis of the asset received?

> What is the difference between a deferred gain and an excluded gain?

> Discuss the formation of a partnership. Is any gain or loss recognized? Explain.

> What amounts are considered at-risk when making the determination of a deductible loss?

> Discuss the at-risk concept and how it applies to the deductibility of investment losses.

> What are the differences between recourse, nonrecourse, and qualified nonrecourse liabilities? Which liabilities are considered at-risk?

> How can two partners, each with a 50% interest in a partnership, have different amounts of outside basis at the formation of a partnership? Shouldn’t the two partners contribute the same amount to have the same interest?

> Elaborate on the term basis-in, basis-out. What does that phrase mean in the context of a partnership formation?

> How do taxation for the corporate form and taxation for the partnership form differ?

> When is it mandatory that a partner calculate his or her partner interest basis (outside basis)? What items affect the outside basis of a partner?

> Explain why nontaxable income and nondeductible expenses increase or reduce outside basis.

> The Subchapter S status of a calendar year corporation is statutorily terminated on August 12, 2017. The Subchapter S status is deemed to be terminated on what date? What is the answer if the status were voluntarily revoked on that date?

> Describe the rules concerning the basis of property distributed to a partner. How does the concept of basis-in, basis-out apply to partnership distributions?

> What are the two tests used to determine whether a group of corporations is a brother-sister group?

> Why might a parent-subsidiary group choose to file, or not to file, a consolidated income tax return?

> When must a corporate tax return be filed? Can a corporation receive an extension of time to file a return and, if so, what is the length of the extension?

> Under what circumstances can a parent-subsidiary group file a consolidated income tax return?

> If a taxpayer moves within two years after moving into a new home and uses the exclusion on his former home, is any gain taxable on the sale of the new home? Under what conditions can some of the exclusion be used?

> What is Schedule L, and what is its purpose?

> Discuss the rules concerning the sale of a personal residence. Include in your discussion, the specifics regarding the ownership test and the use test.

> How is income reported from an installment sale? What are the components of the payments received in an installment sale, and how is the gross profit percentage calculated?

> Kim has a basis in her partnership interest of $12,000 when she receives a distribution from the partnership of $6,000 cash, and equipment with a basis of $8,000 ($12,000 FMV). a. How much gain or loss must Kim recognize on the distribution? b. What is

> Judy acquired passive Activity A in January 2012 and Activity B in July 2013. Until 2017, Activity A was profitable. Activity A produced a loss of $50,000 in 2017 and a loss of $75,000 in 2018. She has $45,000 passive income from Activity B in 2017, and

> A corporation may make a distribution to its shareholders. Depending on the circumstances, in the hands of the shareholder, the distribution can be classified as a dividend, a tax-free distribution or a capital gain. Explain the circumstances in which ea

> Wade has a beginning basis in a partnership of $23,000. His share of income and expense from the partnership consists of the following amounts: Ordinary income…………………………………$43,000 Guaranteed payment ……………………………..12,000 Long-term capital gain……………………………1

> Kerry is a partner in the Kerry, Davis, Smith & Jones Partnership. Kerry owned 25% from January 1, 2017 to June 30, 2017, when he bought Jones’s 25% interest. He owned 50% for the rest of the year. The partnership had ordinary income of $146,000 and $15,

> Darrell acquired an activity eight years ago. The loss from it in the current year was $65,000. The activity involves residential rental real estate in which he is an active participant. Calculate Darrell’s AGI after considering that Darrell’s AGI was $1

> Donald has two investments in activities that are considered nonrental passive activities. He acquired Activity A six years ago, and it was profitable until the current year. He acquired Activity B in the current year. His share of the loss from Activity

> During the current year, Joshua worked 1,300 hours as a tax consultant and 450 hours as a real estate agent. His one other employee (his wife) worked 300 hours in the real estate business. Joshua earned $50,000 as a tax consultant, and together the coupl

> Elaine exchanges a van that is used exclusively for business purposes for another van that also is to be used exclusively for business. The adjusted basis for the old van is $18,000, and its FMV is $14,500. a. Calculate Elaine’s recognized gain or los

> Calvin purchased a 40% partnership interest for $43,000 in February 2015. His share of partnership income in 2015 was $22,000, in 2016 was $25,000, and in 2017 was $12,000. He made no additional contributions to or withdrawals from, the partnership. On D

> Reva gave her daughter a passive activity last year that had an adjusted basis of $75,000. The activity had suspended losses of $35,000 and a fair market value of $120,000. In the current year, her daughter realized income of $18,000 from the passive act

> Rebecca has a $40,000 basis in her partnership interest when she receives liquidating distributions from the partnership. She receives cash of $24,000 and equipment with a $12,000 basis to the partnership. What are the tax consequences of the liquidating

> Rhonda has a basis of $8,000 in a partnership at the beginning of the year. She receives $12,000 in cash distributions, and her distributive share of income is $2,500. a. Is Rhonda required to recognize any gain? If so, how much? b. What is Rhonda’s en

> How are the basis and holding period of the replacement property in an involuntary conversion determined? Explain.

> Barry and Kurt are equal partners in the BK Partnership. Barry receives a guaranteed payment of $55,000. In addition to the guaranteed payment, Barry withdraws $10,000 from the partnership. The partnership has $24,000 in ordinary income during the year.

> Dennis, Suzy, and Katherine form a partnership. Dennis and Suzy give equipment and a building, respectively. Katherine agrees to perform all of the accounting and office work in exchange for a 10% interest. a. Do any of the partners recognize any gain?

> Denise contributes the following assets to a partnership in exchange for a 25% partnership interest: What is Denise’s beginning basis in her partnership interest? FMV $ 20,000 S 12,000 $ 20,000 Basis $ 20,000 $ 5,000 $ 6,000 Cash

> When a passive activity is sold or otherwise disposed of, what happens to any suspended losses from that activity?

> Discuss the characteristics of a like-kind asset. Must the asset received in a like-kind exchange be an exact duplicate of the asset given? Explain.

> Are guaranteed payments treated as ordinary items or as separately stated items?

> What is a wash sale, and why are losses from wash sales disallowed?

> How is depreciation calculated by the partnership when a partner contributes a business asset?

> Is partnership income considered self-employment income? If so, how is it calculated?

> If a partner owns a 20% interest, does that necessarily mean that he or she will receive 20% of the net income from the partnership? Explain.

> When faced with an involuntary conversion, does the taxpayer have an unlimited amount of time to replace the converted property? Explain.

> What AMT adjustment items are likely to affect all taxpayers who itemize their deductions? Give examples.

> When must Form 6198 and Form 8582 be filed? Does the taxpayer file more than one Form 6198 or Form 8582?

> Why would smaller partnerships (and other businesses for that matter) use only the tax basis of accounting, which does not follow GAAP?

> Discuss the concept of steps into the shoes. Does this concept pertain to the partnership, the partners, or both?

> When a partnership receives an asset from a partner, does the partnership ever recognize a gain? What is the basis of the asset in the hands of the partnership after contribution?

> What is the concept of basis? In your discussion, differentiate between outside basis and inside basis.

> Define precontribution gain. What causes a partner to recognize it?

> The general rule is that partners do not recognize any gain when they receive a distribution. In what circumstances might a partner recognize a gain on a current distribution?

> How does a partner’s share of partnership liabilities affect his or her outside basis?

> What entity forms are considered partnerships for federal income tax purposes?

> Why does the marginal tax rate vary up and down for taxable incomes over $100,000?

> Why must some income and gain items be separately stated in a partnership?

> How is the outside basis of a partner allocated to assets in a liquidation of the partnership interest? Include in your answer the effects of distributing cash, ordinary assets, §1231 assets, and capital assets.

> How can a partnership interest be disposed of? Which disposal method is more likely to produce a gain or loss? How is the gain or loss calculated?

> A calendar year corporation properly files a Subchapter S election on January 10, 2017. On what date is the election effective? What if the election were filed on June 1, 2017?

> What criteria must a corporation meet to appropriately elect Subchapter S status?

> Explain the constructive ownership rules and how they relate to related-party transactions.

> What is a related-party loss, and why is it disallowed?