Question: How will Eddie’s $130,000 distribution be taxed?

Answer Choices: a. $125,000 will be Tax Free Return of Capital b. $5,000 will be taxed as Long Term Capital Gain c. $15,000 will be taxed as Dividend Income d. $130,000 will be taxed as Ordinary Income

Answer: c. $15,000 will be taxed as Dividend Income

Question: After the distribution, Beth’s stock basis will be:

Answer Choices: a. $27,000 b. $137,000 c. $12,000 d. $3,000

Answer: a. $27,000

Question: To make an S election, 51% of shareholders must consent to the election.

Answer Choices: True False

Answer: False

Question: At the end of 2024, which of the following is correct?

Answer Choices: a. Farley has $2,000 long term capital gain. b. Farley has stock basis of $9,000. c. Farley has debt basis of $10,000. d. Farley has stock basis of $2,000.

Answer: a. Farley has $2,000 long term capital gain.

Question: Determine Chipper’s dividend received deduction.

Answer Choices: a. $640,900 b. $75,000 c. $445,900 d. $97,500

Answer: d. $97,500

Question: Absent any election, the cash distribution ordering rules for an S corporation with AEP require the distribution to come first from AAA (positive balance), then AEP, then shareholder stock basis.

Answer Choices: True False

Answer: True

Question: Which of the following statements is correct under §351 regarding contributed property?

Answer Choices: a. Spice Corp. takes basis equal to basis in hands of shareholder b. Spice Corp. takes basis equal to FMV c. Ginger takes basis in stock equal to FMV d. None of the above

Answer: a. Spice Corp. will take basis in the property equal to the property’s basis in the hands of the shareholder.

Question: Regarding C Corporations, the following are all requirements for non-recognition of gain or loss under Section 351 except:

Answer Choices: a. Transferors have control of the corporation immediately after the exchange. b. Transferor transfers property to the corporation. c. Transferor receives stock from the corporation. d. Transferor receives stock in exchange for services provided to the corporation.

Answer: d. Transferor receives stock in exchange for services provided to the corporation.

Question: An example of the “entity concept” underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

Answer Choices: True False

Answer: False

Question: An involuntary termination of an S-election is effective immediately on the date an S corporation fails the requirements.

Answer Choices: True False

Answer: True

Question: Xavier has business operations in four states: ND, SD, MN, and MT. In addition, Xavier owns rental property in ND, and also sold the only rental property it owned in MT which generated capital gains. Which states will have income allocated to them?

Answer Choices: a. ND, SD, MN and MT b. ND and MT c. MN and MT d. only ND

Answer: b. ND and MT

Question: What amount of the donation is Nash allowed to deduct in the current year?

Answer Choices: a. $195,500 b. $250,000 c. $54,500 d. $198,000

Answer: d. $198,000

Question: Which of the following best describes recourse liabilities?

Answer Choices: a. Those liabilities for which at least one partner has economic risk of loss. b. Those liabilities secured by property for which the liability is against. c. Those liabilities that affect the partner’s capital account balance under GAAP. d. All of the above describe recourse liabilities.

Answer: a. Those liabilities for which at least one partner has economic risk of loss.

Question: When a corporation receives property in a qualifying §351 transaction, the corporation’s holding period for the property received begins on the transaction date.

Answer Choices: True False

Answer: False