Reference no: EM13339289

Question 1
 
Dean and Jerry each own 50% of Pardners, Inc. an S corporation. At the start of the year, it has $5,000 of AEP and $8,000 in AAA. Pardners' taxable income is $10,000. It distributes $6,000 to each shareholder midyear and distributes another $4,000 to each at the end of the year. How is Dean taxed on his distributions?
Answer
a. $500 dividend income.
b. $1,000 dividend income.
c. $1,500 dividend income.
d. $2,000 dividend income.
e. $3,000 dividend income.

Question 2
 
Dunkenfield, Inc. is an S Corporation. Bill is the sole shareholder. Dunkenfield distributes equipment to Bill (FMV: $95,000; basis: $20,000). There are no other activities during the year. Bill has a stock basis of $35,000 before the distribution. Bill reports a taxable gain for the year of:
Answer
a. $0.
b. $60,000.
c. $75,000.
d. $95,000.
e. None of the above.

Question 3
 
Babaloo, Inc. is a calendar year S Corporation. Desi had a beginning stock basis of $40,000. He owns 60% of the stock. Based upon the following, what is his ending stock basis?
New non-recourse loan $25,000
Increase in AAA 20,000
Distribution to Desi (6,000)
Operating loss (5,000)
Tax-exempt interest income 6,000
Increase in OAA 7,500
Purchases of additional stock 10,000

Answer
a. $72,500.
b. $60,500.
c. $91,100.
d. $76,100.

Question 4
 
Lucy is a 40% owner of Babaloo, Inc. At the start of the year, she has a zero stock basis. Last year, she loaned Babaloo $10,000. That year's operating loss reduced her basis in the loan to $7,000. During the year, Babaloo has operating income of $22,500 and distributes $11,000 to Lucy. Lucy reports a(n):
Answer
a. $1,000 LTCG.
b. $11,000 LTCG.
c. $2,000 LTCG.
d. Loan basis of $5,000.

Question 5
 
Al is the sole shareholder of Bundiful, Inc., an S Corporation. At the start of the year, his stock basis is $25,000. During the year, Bundiful has an operating loss of $35,000 and a capital loss of $15,000. Al loans Bundiful $5,000 during the year. How much can Al deduct due to these losses?
Answer
a. No deduction.
b. $35,000 ordinary loss; $15,000 capital loss.
c. $21,000 ordinary loss; $9,000 capital loss.
d. $17,500 ordinary loss; $7,500 capital loss.

Question 6
 
The Iceberg Lounge, inc., is a calendar year C corporation. Last year, it reported a NOL of $16,000. This year it elected S status. It has an NOL this year of $30,000. At all times during both years, the stock was owned by five shareholders in the same proportions. Harvey Dent, one of the shareholders, owns a 20% interest and had a stock basis of $5,000 at the beginning of the year. How much may he deduct this year?
Answer
a. $9,200.
b. $5,000.
c. $0.
d. $6,000.

Question 7
 
Stark Gadgets, Inc., an S corporation, recognizes a built-in gain of $90,000 and has taxable income of $88,000. The company has an unused $6,000 NOL carryforward and a $4,000 business credit carryforward from a C year. The built-in gains tax liability is:
Answer
a. $28,000.
b. $25,400.
c. $24,700.
d. $0.
e. Some other amount.

Question 8
 
Ben Grimm set up a simple trust for his Aunt Petunia. This year, the trust reported $45,000 entity accounting income and $38,000 distributable net income (DNI). The trust distributed $50,000 cash to Aunt Petunia. the trust's distribution deduction is:
Answer
a. $0.
b. $50,000.
c. $38,000.
d. $45,000.

Question 9
 
The Howard Trust is a complex trust. This year it has $100,000 of distributable net income (none tax-exempt). The trust instrument requires the trustee to distribute 40% to Moe and 30% to Larry. After payment of these amounts, the trustee may make additional distributions at its discretion to Moe, Larry or Shemp. Exercising this authority, the trustee distributes an additional $25,000 to Larry and $25,000 to Shemp. How much income from the trust must Shemp recognize?
Answer
a. $30,000.
b. $25,000.
c. $55,000.
d. $50,000.

Question 10
 
The Silver Trust is required to distribute $20,000 to Clayton and $10,000 to Jay each year. This year it has $21,000 of taxable interest and $15,000 of dividends paid trustee's commissions of $6,000 (allocable half to income and half to principal). It has no other income or expenses. How much gross income must Clayton and Jay recognize?
Answer
a. $22,000 by Clayton and $11,000 by Jay.
b. $24,000 by Clayton and $12,000 by Jay.
c. $15,000 by Clayton and $15,000 by Jay.
d. $20,000 by Clayton and $10,000 by Jay.

Question 11
 
The Addams Family Trust has two beneficiaries, Wednesday and Pugsly. Income and principal can be distributed in the trustee's discretion. Although assets were commingled for investment purposes, separate accounts were maintained. Each beneficiary were given an equal share. This year the had DNI of $60,000. The trustee distributed $75,000 to Wednesday: $30,000 as her one-half share of the entity's income, and $45,000 as a distribution of principal. No distribution was made to Pugsly. What is the trust's DNI deduction?
Answer
a. $30,000.
b. $75,000.
c. None of the above.
d. $60,000.

Question 12
 
The Dragnet Trust owns some investment property (basis: $50,000; FMV: $35,000. Dragnet is in a 35% tax bracket. Joe is the sole benficiary and is in the 15% tax bracket. The trust's DNI for this year is Dragnet's $95,000. What is the most preferable action for the trustee of Dragnet to take, considering only the related tax consequences?
Answer
a. Distribute the land to Joe and make a § 643(e) election.
b. Neither sell nor distribute the land.
c. Sell the land to a third party.
d. Distribute the land to Joe and make no § 643(e) election.

Question 13
 
Stark Industries, Inc., a calendar year S corporation, holds AAA of $270,100 at the beginning of 2013. During the year, the following items occur.
Operating income $180,000
LTCL (4,000)
Cost of Goods Sold (80,000)
State tax refund 3,600
Dividend income 15,000
Interest income (taxable) 4,000
Charitable contributions (18,000)
Stock purchase 15,000
STCG 4,500
STCL (5,000)
Cash distributions to shareholders (60,000)

Calculate Stark's ending AAA balance.
Answer

Question 14
 
The Addams Family Trust leases equipment for operating a haunted house. It cost recovery deductions of $60,000 for its current fiscal year. Uncle Fester computes accounting income at $80,000, of which $40,000 was distributed to Gomez, a first-tier beneficiary. $15,000 was distributed to Pugsly, a second-tier beneficiary and the remaining $25,000 was accumulated by the trustee. Pugsly also received a $25,000 discretionary corpus distribution. The Trust's DNI was $80,000. Identify the treatment of the cost recovery deductions.
Answer

Question 15
 
Tuscaloosa is a simple, calendar year, trust. It has four equal income beneficiaries Groucho, Harpo, Chico, and Zeppo.) This year, the trust has dividend income of $30,000, non-taxable interest of $20,000; rental income of $15,000; and a long-term capital gain of $10,000 (allocable to income). Trustee's commissions are $8,000 (allocable to corpus). Based upon this information:

a. How much income is each beneficiary entitled to receive?

b. What is the trust's DNI?

c. What is the trust's taxable income?

d. How much is taxed to each of the beneficiaries?