REG mod 25f

Question 1

Dividends are only distributed out of current earnings and profits. True / False

Answer 1

False. Dividends are distributed out of current earnings and profits. The amount of the dividend that exceeds current earnings and profits is distributed from accumulated earnings and profits.

Question 2

Name the most significant items that decrease a partner’s basis in a partnership.

Answer 2

Distributions to the partner / cash or property
The partner’s share of losses of the partnership
Reduction of partnership liabilities for which the partner is personally liable for
Note: The above items cannot reduce a partner’s basis below zero.

Question 3

Absent a partnership agreement, how are losses shared in a general partnership?

Answer 3

Losses are shared in the same manner as gains. Absent an agreement otherwise, gains are shared equally.

Question 4

Describe the order in which an S Corporation stockholder calculates basis.

Answer 4

Beginning Basis
\+ All INCOME Items
(Distributions)
(Non-deductible Non-capital expenses)
(Deductible expenses and losses)
Ending Basis
Note: Basis cannot be reduced below zero

Question 5

What type of corporation computes Alternative Minimum Tax?

Answer 5

C corporations

Question 6

Name the most significant items that increase a partner’s basis in a partnership.

Answer 6

• Partnership ordinary income
• Capital gains and other special income items
• Tax-exempt income of the partnership
• Excess of deduction for depletion over the partnership’s basis of that property
• Increase of partnership liabilities for which the partner is personally liable for

Question 7

Describe the rights of a C corporation shareholder.

Answer 7

The stockholder may, transfer the stock at will, vote on fundamental changes, vote to dissolve the corporation, vote on board of director elections, inspect books and records of the corporation, preemptive stock rights, and the right to receive a proporti

Question 8

Describe the level of liability of a limited partner in a limited partnership.

Answer 8

A limited partner’s liability is limited to his / her capital contribution. Limited partners are similar to stockholders of a corporation.

Question 9

In general, no gain / loss is recognized when a person contributes property to a partnership in exchange for an interest in the partnership. True / False

Answer 9

True. Note: There are exceptions to this rule.

Question 10

Upon the death of partner, does the partner’s estate have the right to his share of the general partnership’s property?

Answer 10

No, the estate only receives the deceased partner’s capital account and share of the general partnerships profit.

Question 11

How are profits and losses allocated to the partners of a limited partnership?

Answer 11

According to the limited partnership agreement. Absent an agreement the profits and losses are allocated based on the partners’ capital contributions. Note: This is not the same as a general partnership.

Question 12

What are disadvantages of a sole proprietorship?

Answer 12

Unlimited personal liability.

Capital is only obtained from personal finances or borrowings.