Misc Tax

Question 1

Foreign tax credit

Answer 1

The lesser of: 25,000
or
Foreign source income / (US source income + foreign source income) X tax liability before credit

Question 2

Partnership organizational costs deduction

Answer 2

same as corporation - 5,000 deduction and amortize remainder over 180 months

Question 3

What is the tax treatment of net losses in excess of the at-risk amount for an activity?

Answer 3

Any losses in excess of the at-risk amount are suspended and carried forward without expiration and are deductible against income in future years from that activity.

Question 4

at-risk vs passive loss in determining a partner’s deduction for that partner’s share of partnership losses

Answer 4

Both help determine it.
At-risk rules limit the amount of loss deductions from investment activities to the amount the taxpayer had at-risk. The amount that a taxpayer had at risk is the amount of cash and basis of property contributed to an activity. Borrowed amounts are considered to be at risk to the extent that the taxpayer is personally liable for repayment. At-risk rules do not apply to partnerships, but the rules do apply to the individual partners.

Passive activity rules prevent the offsetting of nonpassive income with passive losses and credits from passive activities. Passive activity rules do not apply to partnerships, but the rules do apply to the individual partners.

Question 5

non separately stated partnership income

Answer 5

aka ordinary business income
Revenues 	
(Salaries) 	
(Guaranteed payments)
(Rent expense)
(Depreciation expense)

Question 6

Passive income does not include portfolio income.

Answer 6

just to remember :)

Question 7

sale of asset contributed by partner with a built in gain (how is this treated)

Answer 7

Built in gain would be: basis of 5,000 value of 8,000 built in gain = 3,000. If asset then sold for 7,000, the partner who contributed the asset would get 2,000 (the gain)of that income allocated to them.
The amount of gain allocated to partner is the lower of the realized gain or built-in gain

Question 8

when is a gain recognized in a partnership liquidating distribution

Answer 8

Gain is recognized on a partnership distribution ONLY if the cash distributed exceeds the basis in the partnership interest. In this case there was no cash distributed, so no gain is recognized.

Question 9

Cash distributions to a partner are not included in that partners

Answer 9

reportable income

Question 10

Sale of partnership: ordinary or capital gain?

Answer 10

Capital gain in the extent that what was received exceeds basis

Question 11

what income is recognized when a partner sells his interest in a partnership that has unrealized receivables

Answer 11

If a partner sells or exchanges his/her partnership interest and the partnership has either unrealized receivables or substantially appreciated inventory, the partner recognizes an ordinary gain to the extent that the amount realized by the partner due to the unrealized receivables or substantially appreciated inventory is greater than the partner’s basis in the items.

Question 12

tax basis in s corp is affected by non taxable income

Answer 12

just to remember

Question 13

s corp shareholder limit

Answer 13

Must have no more than 100 shareholders, and a husband and wife who each own stock are counted as one shareholder.

Question 14

After a corporation’s status as an S corporation is revoked or terminated, how many years is the corporation required to wait before making a new S election, in the absence of IRS consent to an earlier election?

Answer 14

Once a corporation’s S status is revoked or terminated, the corporation must wait five years before making a new S election, in the absence of IRS consent to an earlier election.

Question 15

s corp losses deduction on personal return

Answer 15

The ordering rules for adjusting basis at the end of the tax year for S corporation shareholders (and partners in a partnership) is to first increase basis for income, then reduce it for distributions, and then reduce it for losses. Losses can be reported on a shareholder’s return only to the extent of basis, which is $1,500

Question 16

is tax exempt and taxable interest includable in s corp owner basis?

Answer 16

Income for an S corporation includes taxable and tax-exempt interest. All income of an S corporation is passed through to the shareholder and results in an increase in the shareholder’s basis in the stock of the corporation. The shareholder is responsible for any taxes that may or may not apply to the S corporation’s income.

Question 17

Which items must be separately stated on Form 1120S, U.S. Income Tax Return for a Corporation, Schedule K-1?

Answer 17

Gain or loss from the sale of collectibles.

Question 18

Prail Corporation is a C corporation that on February 1, 2015 elected to be taxed as a calendar-year S corporation. On June 15, 2015, Prail sold land with a basis of $100,000 for $200,000 cash. The fair market value of the land on February 1, 2015 was $150,000. Prail had no other income or loss for the year and no carryovers from prior years.

What is Prail’s tax?

Answer 18

A C corporation that makes an S election and has unrealized built-in gains in its assets as of the election day must pay a built-in gains tax on this appreciation if it is recognized within the next 10 years.

When Prail makes the S election it has appreciation in the land of $50,000 ($150,000 - $100,000). Since the land was sold within 10 years of the election day, the first $50,000 of gain is taxed to the corporation at the rate of 35%.

Therefore, Prail must pay a tax of $17,500 ($50,000 * 35%).

Question 19

who does built in gains tax apply to

Answer 19

The built in gains tax applies only when an existing C corporation makes an S corporation election. The built in gains tax does not apply when a sole proprietorship makes an S election

Question 20

Under the unified rate schedule,

Answer 20

Under the unified rate schedule, lifetime taxable gifts and transfers at death are taxed on a cumulative basis through reducing the amount of the unified credit by the sum of all amounts credited in preceding periods.