1) On July 1 of the current year, Ambrose was admitted to the partnership of Ambrose...

1) On July 1 of the current year, Ambrose was admitted to the partnership of Ambrose and Nectar. His contribution to capital consisted of 500 shares of stock in Paniculata Corporation, which he bought in 2014 for $10,000 and which had a fair market value of $50,000 on July 1 of the current year. Ambrose's interest in the partnership's capital and profits is 25 percent. On July 1 of the current year, the fair market value of the partnership's net assets (after Ambrose was admitted) was $200,000. What is Ambrose's taxable gain in the current year on the exchange of stock for his partnership interest?

a.$40,000 ordinary income

b.$40,000 Section 1231 gain

c.$40,000 long-term capital gain

d.$0 gain or loss

e.None of these choices are correct.

2) Which of the following statements is true of corporations?

a.If a corporation has a long-term capital loss that is carried back, it is treated as a short-term capital loss.

b.Capital losses of a corporation may be deducted from ordinary income, subject to an annual limitation.

c.A corporation may deduct organizational expenditures as they are incurred.

d.Income of all corporations is taxed in the same way that income of partnerships is taxed.

e.A corporation's charitable contribution deduction is limited to 25 percent of the corporation's taxable income.

3.-Barry owns a 50 percent interest in B&B Interests, a partnership. His brother, Benny, owns a 35 percent interest in that same partnership, and the remaining 15 percent is owned by an unrelated individual. During the current year, Barry sells a rental property with a basis of $60,000 to B&B Interests for $100,000. The partnership intends to hold the rental as inventory for resale. What is the amount and nature of Barry's gain or loss on this transaction?

a.$0 gain or loss

b.$40,000 long-term capital loss

c.$40,000 ordinary income

d.$40,000 long-term capital gain

e.None of these choices are correct.

Solutions

Expert Solution

Requirement 1: The correct option is “d: $0 gain or loss”

When a partner contributes property in exchange for the interest in the partnership, the realized gains or losses from the exchange is deferred for tax purpose. The term property is widely defined and includes both tangible and intangible assets except services provided by partners.

Requirement 2: The correct option is “a”

Corporations can offset capital losses against capital gains but are prohibited from offsetting the capital losses against the ordinary income. They can carry back 3 years or forward 5 years of current year unused long-term capital losses as short-term capital loss.

Requirement 3: The correct option is “c: $40,000 ordinary income”

The taxpayer along with his brother holds more than 50% (50% + 35%) interest in the same partnership and the partnership holds rental property as inventory for resale and therefore the gain of $40,000 ($100,000 − $60,000) is ordinary income for the taxpayer.

ekkarill92 answered 1 year ago

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