REG mod 25e Flashcards
What type of gain is generally recognized on the sale of a partnership interest? What is the exception to this general rule?
Generally the sale of a partnership interest results in a capital gain. The gain is recognized as ordinary income to the extent of the gain that results from unrealized receivables and inventory.
What is a foreign corporation?
A corporation that does business in a state in which it was not originally created. Note: Doing business includes maintaining an office or selling personal property.
What is the basis of an individual’s partnership interest if the partner received the interest for services performed?
The basis is equal to the amount of taxable income recognized by the individual.
Describe the items that increase and decrease a stockholder’s basis in an S Corporation.
A stockholder’s basis is increased by income items and decreased by distributions, and losses and deductions.
Is it possible for a general partner, in a Limited Partnership, to also be a limited partner?
Yes, this is possible. The general partner does not avoid personal liability by also being a limited partner.
Describe some of the disadvantages of a Corporation.
Taxes. Income is taxed at a corporate level, and it is taxed again at the individual level resulting in double taxation. Significant costs may be incurred to create the corp, esp if the corp is a public co.
Corporations are formed under Federal Statutes. True / False
False. Corporations are formed under state statutes.
What is a new partner’s liability on general partnership debts that were obtained in the past?
The new partner risks only his capital contribution.
Describe the circumstances when a court may “pierce the corporate veil”.
A court may pierce the veil (hold officers and directors of a corporation personally liable) when Co-mingling Assets, Fraud, or Under-Capitalizing the corporation
What is a silent partner?
A silent partner is a partner that does not make management decisions.
Describe the voting rights of a corporation’s treasury stock.
Treasury stock does not have voting rights.
Describe the Business Judgment Rule.
This rule allows for the directors to make errors when performing their duties. A director is not liable for errors in their judgment if they made decisions in good faith.
