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This post addresses multiple partnership & S Corp questions.

1. The stock of Cardinal Corporation is held as follows: 85% by Blue Jay Corporation (basis of $800,000) and 15% by Samuel (basis of $60,000). Cardinal Corporation is liquidated on October 20, 2009, pursuant to a plan adopted on January 9, 2009. Pursuant to the liquidation, Cardinal Corporation distributed Asset A (basis of $550,000, fair market value of $850,000) to Blue Jay, and Asset B (basis of $200,000, fair market value of $150,000) to Samuel. No election is made under § 338. With respect to the liquidation of Cardinal:
a. Samuel recognizes a gain of $90,000.
b. Blue Jay has a basis in Asset A of $850,000.
c. Cardinal Corporation recognizes a loss of $50,000.
d. Blue Jay recognizes a gain of $50,000.
e. None of the above.

2. The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses in determining the partnership's net income (loss). This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

True False

3. Maggie, a partner in the Magpie partnership, received a proportionate nonliquidating distribution of $20,000 cash, unrealized receivables with a basis of $0 and a fair market value of $30,000, and land with a basis of $25,000 and a fair market value of $20,000. Her basis in the partnership interest immediately before the distributions was $30,000. She will recognize $0 gain on the distribution, and her basis in the receivables and land will be $0 and $20,000 respectively.

True False

4. Kevin, Chuck, and Greg contributed assets to form the equal KCG Partnership. Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000). Chuck contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000). Greg contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000. Which of the following tax treatments is not correct?
a. Kevin's basis in his partnership interest is $130,000.
b. Chuck's basis in his partnership interest is $100,000.
c. Greg's basis in his partnership interest is $60,000.
d. KCG has a basis of $80,000, $40,000, and $0 in the land and property (excluding cash) contributed by Kevin, Chuck, and Greg, respectively.
e. All of these statement are correct.

5. Toni's basis in her partnership interest was $60,000, including her $50,000 share of partnership liabilities. The partnership decides to liquidate, and after repaying all liabilities, distributes all remaining assets proportionately to the partners. Toni receives $20,000 cash and accounts receivable with a $12,000 basis and a $14,000 fair market value to the partnership. What gain or loss does Toni recognize, and what is her basis in the accounts receivable?
a. $0 gain; $12,000 basis.
b. $0 gain; $14,000 basis.
c. $10,000 gain; $0 basis.
d. $10,000 loss; $0 basis.
e. $10,000 gain; $12,000 basis.

6. Beginning in 2009, the AAA of Amit, Inc., an S corporation, has a balance of $722,000. During the year, the following items occur.

Operating income $472,000
Interest income 6,500
Dividend income 14,050
Municipal bond interest income 6,000
Long-term capital loss from sale of investment land 7,400
Charitable contributions 19,000
Cash distributions 57,000

Amit's ending AAA balance is:
a. $1,188,150.
b. $1,138,550.
c. $1,131,150.
d. $1,124,650.

7. Joe owns 100% of Green Corporation (E & P of $500,000) and 100% of Navy Corporation (E & P of $400,000). Joe sells 100 shares in Green (basis of $15,000) to Navy for $40,000, its fair market value. Joe purchased the stock in Green six years ago. Joe has:
a. Dividend income of $25,000.
b. Dividend income of $40,000.
c. A long-term capital gain of $25,000.
d. A long-term capital gain of $40,000.
e. None of the above.

8. Kevin, Chuck, and Greg contributed assets to form the equal KCG Partnership. Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000). Chuck contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000). Greg contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000. Which of the following tax treatments is not correct?
a. Kevin's basis in his partnership interest is $130,000.
b. Chuck's basis in his partnership interest is $100,000.
c. Greg's basis in his partnership interest is $60,000.
d. KCG has a basis of $80,000, $40,000, and $0 in the land and property (excluding cash) contributed by Kevin, Chuck, and Greg, respectively.
e. All of these statement are correct.

9. The MBC Partnership makes a § 736(b) cash payment of $50,000 to partner Betty in liquidation of her interest in the partnership. The partnership owns no hot assets. Betty's basis in her partnership interest before the distribution was $20,000. If the partnership has a § 754 election in effect, it will record a $30,000 decrease in its inside basis in partnership assets, allocable to the remaining partners in the partnership.

True False.

Solution Preview

Your solution and explanations are attached.

-- Solution contains all correct answers to questions and accompanying explanations. see attached Word document for complete solutions to study questions.

The stock of Cardinal Corporation is held as follows: 85% by Blue Jay Corporation (basis of $800,000) and 15% by Samuel (basis of $60,000). Cardinal Corporation is liquidated on October 20, 2009, pursuant to a plan adopted on January 9, 2009. Pursuant to the liquidation, Cardinal Corporation distributed Asset A (basis of $550,000, fair market value of $850,000) to Blue Jay, and Asset B (basis of $200,000, fair market value of $150,000) to Samuel. No election is made under § 338. With respect to the liquidation of Cardinal:
a. Samuel recognizes a gain of $90,000. -- Sam is under a 331 calculated as 150000 - 60000 = 90,000. The liquidation of A to Blue Jay is under 332-parent, so there is no gain, and Blue has a carryover on the asset. "A" is the only correct statement.
b. Blue Jay has a basis in Asset A of $850,000.
c. Cardinal Corporation recognizes a loss of $50,000.
d. Blue Jay recognizes a gain of $50,000.
e. None of the above.

2. The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses in determining the partnership's net income (loss). This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

True -- this is the correct way that it is handled. False

3. Maggie, a partner in the Magpie partnership, received a ...

Solution Summary

The solution provides the calculations, explanations, and answers needed for each of the scenarios presented involving S Corporations and partnerships. All questions are solved in the Word document attached to the solution.

$2.19