26. Assume for 2011 that Don made one transfer involving his granddaughter as follows: Don opened a joint checking account with his granddaughter, with right of survivorship, for her college expenses. Don made an initial deposit of $100,000. During 20011, granddaughter wrote checks on the account to the school for tuition of $15,000 and living expenses of $20,000. What is the amount of the taxable gift for federal gift tax purposes?
a. 0.
b. $20,000.
c. $22,000.
d. $35,000.
e. none of the above.
27. Oliver gave his wife $5,100,000 worth of publicly traded stock in August 2011, outright. Oliver's basis in the stock was $50,000. What is the amount of the taxable gift for federal gift tax purposes? (Oliver made no other gifts to anyone in 2011).
a. 0.
b. $87,000.
c. $100,000.
d. $5,087,000.
28. For 2012, what is the amount of the maximum gift tax annual exclusion per donor from the value of a gift of a future interest made to any one donee?
a. 0.
b. $13,000.
c. $26,000.
d. $5,000,000.
29. Facts for Questions 29 and 30. Mr. Grey died on January 1, 2011. Mr. Grey made no gifts during his life. Under his will, Mr. Grey devised all of his probate assets to his wife. Mr. Grey owned the following assets, probate and nonprobate, at the date of his death:
Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving spouse) names as tenants by the entireties that was purchased in 2005. The home was had a fair market value of $2,000,000 both at the date of Mr. Grey's death and six months after the Mr. Grey's death.
Asset 2. Publicly traded stocks and bonds solely in , Mr. Grey's name that had a fair market value of $3,000,000 on the date of Mr. Grey's death and a fair market value of $2,000,000 six months after Mr. Grey's death.
Asset 3. Undeveloped real estate in Mr. Grey's name and the name of his daughter, Sue Smith, jointly with right of survivorship that Mr. Grey purchased in 2005 for $100,000. The property had a fair market value of $2,500,000 at the date of Mr. Grey's death and a fair market value of $1,000,000 x months after the date of Mr. Grey's death.
Asset 4. A condominium in the decedent's name alone purchased in 2001 and used as a vacation home that had a fair market value of $500,000 on the date of Mr. Grey's death. The condominium was sold by the personal representative of the decedent's estate for $250,000 four months after Mr. Grey's death.
Based on the facts for questions 29 and 30, which of the following options are available to Mr. Grey's estate for valuation of the assets includible in the gross estate?
a. The estate may use date of death values or it may elect alternate valuation.
b. The estate must use date of death values.
c. The estate must elect alternate valuation.
d. Valuation is not required as no Federal Estate Tax Return is required to be filed.
30. Facts for Questions 29 and 30. Mr. Grey died on January 1, 2011. Mr. Grey made no gifts during his life. Under his will, Mr. Grey devised all of his probate assets to his wife. Mr. Grey owned the following assets, probate and nonprobate, at the date of his death:
Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving spouse) names as tenants by the entireties that was purchased in 2005. The home was had a fair market value of $2,000,000 both at the date of Mr. Grey's death and six months after the Mr. Grey's death.
Asset 2. Publicly traded stocks and bonds solely in , Mr. Grey's name that had a fair market value of $3,000,000 on the date of Mr. Grey's death and a fair market value of $2,000,000 six months after Mr. Grey's death.
Asset 3. Undeveloped real estate in Mr. Grey's name and the name of his daughter, Sue Smith, jointly with right of survivorship that Mr. Grey purchased in 2005 for $100,000. The property had a fair market value of $2,500,000 at the date of Mr. Grey's death and a fair market value of $1,000,000 six months after the date of Mr. Grey's death.
Asset 4. A condominium in the decedent's name alone purchased in 2001 and used as a vacation home that had a fair market value of $500,000 on the date of Mr. Grey's death. The condominium was sold by the personal representative of the decedent's estate for $250,000 four months after Mr. Grey's death.
Based upon the facts presented in the fact pattern for questions 32 and 33, what is the amount of Mr. Grey's gross estate for federal estate tax purposes?
a. 0.
b. $2,500,000.
c. $3,500,000.
d. $4,250,000.
e. $7,000,000.
31. Jennie purchased 50 percent of the shares of SJ Corporation, a calendar year S corporation, for $7,000. She also guaranteed a corporate loan of $6,000. For 2011, SJ Corporation had an operating loss of $22,000. What is the amount of SJ Corporation's loss that Jennie may deduct on her individual income tax return for 2011?
a. $11,000.
b. $10,000.
c. $7,000.
d. 0.
32. Which of the following trusts is eligible to be an S corporation shareholder?
a. Electing small business trust.
b. Eligible foreign trust.
c. Qualified subchapter S trust.
d. Only a and c.
e. All of the above trusts are eligible to be S corporation shareholders.
33. Which of the following count as a single S corporation shareholder?
a. A husband and wife.
b. A spouse and a spouse's estate.
c. Members of a family with a common ancestor (who meet the six generations test).
d. All of the above.
34. Ellen is a 25 percent partner in EFGH Partners, a general partnership. Ellen's adjusted basis in her partnership interest is $18,000. During the current taxable year, Ellen received a non-liquidating distribution of land from EFGH Partners that had an adjusted basis to the partnership of $23,000 and a fair market value of $45,000 on the date of distribution. What is Ellen's basis in the land received in the non-liquidating distribution?
a. 0.
b. $18,000.
b. $23,000.
c. $45,000.
35. On which of the following grounds may an S corporation may lose its S status?
a. it issues a second class of stock.
b. it has a nonresident alien shareholder.
c. the number of shareholders exceeds 100.
d. all of the above.
36. A shareholder's adjusted basis in the shareholder's stock is used to make determinations with respect to which of the following?
a. the extent to which a distribution made by the corporation to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a given year.
c. the shareholder's realized gain or loss upon the sale or exchange of the stock.
d. all of the above.
37. In the current year, Sue received a liquidating distribution of real estate from UTSRQ Partnership, a general partnership. The real estate had an adjusted basis to the partnership of $35,000 and a fair market value of $90,000 on the date of the distribution. Sue's adjusted basis in her 20 percent interest in UTSRQ Partnership was $50,000. How much gain or loss did Sue recognize on receipt of the distribution and what is her basis in the real estate?
\
a. 0 gain or loss recognized and a $50,000 basis in the real estate.
b. ($15,000) loss recognized and a $35,000 basis in the real estate.
c. 0 gain or loss recognized and a $35,000 basis in the real estate.
d. $40,000 gain recognized and a $90,000 basis in real estate.
e. $15,000 gain recognized and a $50,000 basis in real estate.
38. On January 1 of the current taxable year, Sam and Barbara form an equal partnership. Sam makes a cash contribution of $60,000 and a contribution of property with an adjusted basis to him of $160,000 and a fair market value of $140,000 in exchange for his interest in the partnership. Barbara contributes property with an adjusted basis to her of $120,000 and a fair market value of $200,000in exchange for her partnership interest. Which of the following statements is accurate regarding the income tax consequences of this transaction?
a. Sam's adjusted basis in his partnership interest is $200,000.
b. The partnership's adjusted basis in the property contributed by Sam is $140,000.
c. Barbara recognized a gain of $80,000 with respect to her contribution of property.
d. Barbara's adjusted basis in her partnership interest is $120,000.
39. Tina and Betty formed a partnership. Tina received a 40 percent interest in the partnership in exchange for land with an adjusted basis to her of $60,000 and a fair market value of $80,000. Betty received a 60 percent interest in the partnership in exchange for $120,000 of cash. Three years after the date of contribution, the land contributed by Tina was sold by the partnership to an unrelated third party for $90,000. How much gain was required to be allocated to Tina as a result of the sale by the partnership?
a. $4,000.
b. $12,000.
c. $24,000.
d. $30,000.
40. When inventory that was contributed to a partnership in exchange for a partnership interest is eventually sold by the partnership, how will the character of the income or loss be determined?
a. The character of any income or loss will be ordinary regardless of when the contributed property is sold by the partnership and regardless of the character of the asset in the hands of the partnership.
b. The character of any income or loss will be ordinary if the contributed property is sold by the partnership within five years after the date of contribution regardless of the character of the asset in the hands of the partnership
c. The character of any income or loss will be based on the character of the asset in the hands of the partnership regardless of when the contributed property is sold by the partnership.
d. The character of any income or loss will be ordinary to the extent of the contributing partner's built-in gain or loss in the property at the time of the contribution regardless of when the contributed property is sold, and any balance will based on the character of the asset in the hands of the partnership.
41. Barbara and Bill formed an equal partnership, B&B, a general partnership, on January 1, 2011. Barbara contributed $100,000 in exchange for her one-half interest. Bill contributed land worth $100,000 that had an adjusted basis to him of $30,000 in exchange for his one-half interest. Which of the following statements is accurate with respect to this transaction?
a. None of Barbara, Bill, or B&B recognized any gain or loss.
b. Bill recognized gain of $70,000 , but Barbara and B&B did not recognize any gain or loss.
c. B&B recognized gain or $70,000 , but Barbara and Bill did not recognize any gain or loss.
d. Bill and B&B each recognized $70,000 of gain, but Barbara did not recognize any gain or loss.
42. Ten years ago, Lisa acquired a one-third interest in Dee Associates, a general partnership. In the current taxable year, when Lisa's entire interest in the partnership was liquidated, Dee Associates' assets consisted of cash of $20,000 and tangible property with an adjusted basis to the partnership of $46,000 and a fair market value of $40,000 on the date of distribution. Dee Associates had no liabilities. Lisa's adjusted basis in her one-third interest in the partnership was $22,000. Lisa received cash of $20,000 in complete liquidation of her entire interest. How much loss will Lisa recognize upon receipt of the liquidating distribution?
a. 0.
b. $2,000 short-term capital loss.
c. $2,000 long-term capital loss.
d. $2,000 ordinary loss.
43. Jim, one of two equal partners of the JJ Partnership, a general partnership, contributed business property with an adjusted basis to him of $15,000 and a fair market value of $10,000 to the JJ Partnership. Jim's capital account was credited with $10,000. The property later was sold for $12,000. As a result of this sale, how much gain or loss must Jim report on his personal income tax return?
a. $1,000 gain.
b. $1,500 loss.
c. $2,000 gain.
d. $3,000 loss.
44. Ronald and Roy formed an equal partnership, R&R Partnership, a general partnership, on January 1, 2012. Ronald contributed $100,000 in exchange for his one-half interest in R&R partnership. Roy contributed land worth $100,000 and with an adjusted basis to Roy of $30,000 in exchange for his one-half interest in the partnership. Roy is a real estate developer, and at the time of the contribution, the land was inventory in his hands. The land is a capital asset in the hands of R&R Partnership. If R&R Partnership sells the land in 2018 to an unrelated taxpayer for $180,000,how much gain will be recognized by R&R Partnership and what will be the character of the gain?
a. $80,000, all of which gain will be ordinary income
b. $150,000, all of which gain will be capital gain.
c. $150,000, all of which gain will be ordinary income.
d. $150,000, consisting of $80,000 capital gain and $70,000 ordinary income.
45. At the beginning of 2012, Margaret's adjusted basis in her 30 percent interest in MP Partnership, a general partnership, was $3,000. During 2012, Margaret did not make any additional contributions to MP Partnership, and Margaret's share of MP Partnership liabilities did not change. During 2012, MP Partnership distributed $5,000 to Margaret, and MP Partnership had the following items of partnership income, deduction, gain and loss for 2012:
Taxable income $15,000
Tax-exempt interest $6,000
Section 1231 loss ($10,000)
What is Margaret's adjusted basis in her partnership interest in MP Partnership at the end of 2012?
a. 0.
b. $1,300.
c. $9,000.
d. $2,700.
a. 0.
b. $20,000.
c. $22,000.
d. $35,000.
e. none of the above.
27. Oliver gave his wife $5,100,000 worth of publicly traded stock in August 2011, outright. Oliver's basis in the stock was $50,000. What is the amount of the taxable gift for federal gift tax purposes? (Oliver made no other gifts to anyone in 2011).
a. 0.
b. $87,000.
c. $100,000.
d. $5,087,000.
28. For 2012, what is the amount of the maximum gift tax annual exclusion per donor from the value of a gift of a future interest made to any one donee?
a. 0.
b. $13,000.
c. $26,000.
d. $5,000,000.
29. Facts for Questions 29 and 30. Mr. Grey died on January 1, 2011. Mr. Grey made no gifts during his life. Under his will, Mr. Grey devised all of his probate assets to his wife. Mr. Grey owned the following assets, probate and nonprobate, at the date of his death:
Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving spouse) names as tenants by the entireties that was purchased in 2005. The home was had a fair market value of $2,000,000 both at the date of Mr. Grey's death and six months after the Mr. Grey's death.
Asset 2. Publicly traded stocks and bonds solely in , Mr. Grey's name that had a fair market value of $3,000,000 on the date of Mr. Grey's death and a fair market value of $2,000,000 six months after Mr. Grey's death.
Asset 3. Undeveloped real estate in Mr. Grey's name and the name of his daughter, Sue Smith, jointly with right of survivorship that Mr. Grey purchased in 2005 for $100,000. The property had a fair market value of $2,500,000 at the date of Mr. Grey's death and a fair market value of $1,000,000 x months after the date of Mr. Grey's death.
Asset 4. A condominium in the decedent's name alone purchased in 2001 and used as a vacation home that had a fair market value of $500,000 on the date of Mr. Grey's death. The condominium was sold by the personal representative of the decedent's estate for $250,000 four months after Mr. Grey's death.
Based on the facts for questions 29 and 30, which of the following options are available to Mr. Grey's estate for valuation of the assets includible in the gross estate?
a. The estate may use date of death values or it may elect alternate valuation.
b. The estate must use date of death values.
c. The estate must elect alternate valuation.
d. Valuation is not required as no Federal Estate Tax Return is required to be filed.
30. Facts for Questions 29 and 30. Mr. Grey died on January 1, 2011. Mr. Grey made no gifts during his life. Under his will, Mr. Grey devised all of his probate assets to his wife. Mr. Grey owned the following assets, probate and nonprobate, at the date of his death:
Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving spouse) names as tenants by the entireties that was purchased in 2005. The home was had a fair market value of $2,000,000 both at the date of Mr. Grey's death and six months after the Mr. Grey's death.
Asset 2. Publicly traded stocks and bonds solely in , Mr. Grey's name that had a fair market value of $3,000,000 on the date of Mr. Grey's death and a fair market value of $2,000,000 six months after Mr. Grey's death.
Asset 3. Undeveloped real estate in Mr. Grey's name and the name of his daughter, Sue Smith, jointly with right of survivorship that Mr. Grey purchased in 2005 for $100,000. The property had a fair market value of $2,500,000 at the date of Mr. Grey's death and a fair market value of $1,000,000 six months after the date of Mr. Grey's death.
Asset 4. A condominium in the decedent's name alone purchased in 2001 and used as a vacation home that had a fair market value of $500,000 on the date of Mr. Grey's death. The condominium was sold by the personal representative of the decedent's estate for $250,000 four months after Mr. Grey's death.
Based upon the facts presented in the fact pattern for questions 32 and 33, what is the amount of Mr. Grey's gross estate for federal estate tax purposes?
a. 0.
b. $2,500,000.
c. $3,500,000.
d. $4,250,000.
e. $7,000,000.
31. Jennie purchased 50 percent of the shares of SJ Corporation, a calendar year S corporation, for $7,000. She also guaranteed a corporate loan of $6,000. For 2011, SJ Corporation had an operating loss of $22,000. What is the amount of SJ Corporation's loss that Jennie may deduct on her individual income tax return for 2011?
a. $11,000.
b. $10,000.
c. $7,000.
d. 0.
32. Which of the following trusts is eligible to be an S corporation shareholder?
a. Electing small business trust.
b. Eligible foreign trust.
c. Qualified subchapter S trust.
d. Only a and c.
e. All of the above trusts are eligible to be S corporation shareholders.
33. Which of the following count as a single S corporation shareholder?
a. A husband and wife.
b. A spouse and a spouse's estate.
c. Members of a family with a common ancestor (who meet the six generations test).
d. All of the above.
34. Ellen is a 25 percent partner in EFGH Partners, a general partnership. Ellen's adjusted basis in her partnership interest is $18,000. During the current taxable year, Ellen received a non-liquidating distribution of land from EFGH Partners that had an adjusted basis to the partnership of $23,000 and a fair market value of $45,000 on the date of distribution. What is Ellen's basis in the land received in the non-liquidating distribution?
a. 0.
b. $18,000.
b. $23,000.
c. $45,000.
35. On which of the following grounds may an S corporation may lose its S status?
a. it issues a second class of stock.
b. it has a nonresident alien shareholder.
c. the number of shareholders exceeds 100.
d. all of the above.
36. A shareholder's adjusted basis in the shareholder's stock is used to make determinations with respect to which of the following?
a. the extent to which a distribution made by the corporation to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a given year.
c. the shareholder's realized gain or loss upon the sale or exchange of the stock.
d. all of the above.
37. In the current year, Sue received a liquidating distribution of real estate from UTSRQ Partnership, a general partnership. The real estate had an adjusted basis to the partnership of $35,000 and a fair market value of $90,000 on the date of the distribution. Sue's adjusted basis in her 20 percent interest in UTSRQ Partnership was $50,000. How much gain or loss did Sue recognize on receipt of the distribution and what is her basis in the real estate?
\
a. 0 gain or loss recognized and a $50,000 basis in the real estate.
b. ($15,000) loss recognized and a $35,000 basis in the real estate.
c. 0 gain or loss recognized and a $35,000 basis in the real estate.
d. $40,000 gain recognized and a $90,000 basis in real estate.
e. $15,000 gain recognized and a $50,000 basis in real estate.
38. On January 1 of the current taxable year, Sam and Barbara form an equal partnership. Sam makes a cash contribution of $60,000 and a contribution of property with an adjusted basis to him of $160,000 and a fair market value of $140,000 in exchange for his interest in the partnership. Barbara contributes property with an adjusted basis to her of $120,000 and a fair market value of $200,000in exchange for her partnership interest. Which of the following statements is accurate regarding the income tax consequences of this transaction?
a. Sam's adjusted basis in his partnership interest is $200,000.
b. The partnership's adjusted basis in the property contributed by Sam is $140,000.
c. Barbara recognized a gain of $80,000 with respect to her contribution of property.
d. Barbara's adjusted basis in her partnership interest is $120,000.
39. Tina and Betty formed a partnership. Tina received a 40 percent interest in the partnership in exchange for land with an adjusted basis to her of $60,000 and a fair market value of $80,000. Betty received a 60 percent interest in the partnership in exchange for $120,000 of cash. Three years after the date of contribution, the land contributed by Tina was sold by the partnership to an unrelated third party for $90,000. How much gain was required to be allocated to Tina as a result of the sale by the partnership?
a. $4,000.
b. $12,000.
c. $24,000.
d. $30,000.
40. When inventory that was contributed to a partnership in exchange for a partnership interest is eventually sold by the partnership, how will the character of the income or loss be determined?
a. The character of any income or loss will be ordinary regardless of when the contributed property is sold by the partnership and regardless of the character of the asset in the hands of the partnership.
b. The character of any income or loss will be ordinary if the contributed property is sold by the partnership within five years after the date of contribution regardless of the character of the asset in the hands of the partnership
c. The character of any income or loss will be based on the character of the asset in the hands of the partnership regardless of when the contributed property is sold by the partnership.
d. The character of any income or loss will be ordinary to the extent of the contributing partner's built-in gain or loss in the property at the time of the contribution regardless of when the contributed property is sold, and any balance will based on the character of the asset in the hands of the partnership.
41. Barbara and Bill formed an equal partnership, B&B, a general partnership, on January 1, 2011. Barbara contributed $100,000 in exchange for her one-half interest. Bill contributed land worth $100,000 that had an adjusted basis to him of $30,000 in exchange for his one-half interest. Which of the following statements is accurate with respect to this transaction?
a. None of Barbara, Bill, or B&B recognized any gain or loss.
b. Bill recognized gain of $70,000 , but Barbara and B&B did not recognize any gain or loss.
c. B&B recognized gain or $70,000 , but Barbara and Bill did not recognize any gain or loss.
d. Bill and B&B each recognized $70,000 of gain, but Barbara did not recognize any gain or loss.
42. Ten years ago, Lisa acquired a one-third interest in Dee Associates, a general partnership. In the current taxable year, when Lisa's entire interest in the partnership was liquidated, Dee Associates' assets consisted of cash of $20,000 and tangible property with an adjusted basis to the partnership of $46,000 and a fair market value of $40,000 on the date of distribution. Dee Associates had no liabilities. Lisa's adjusted basis in her one-third interest in the partnership was $22,000. Lisa received cash of $20,000 in complete liquidation of her entire interest. How much loss will Lisa recognize upon receipt of the liquidating distribution?
a. 0.
b. $2,000 short-term capital loss.
c. $2,000 long-term capital loss.
d. $2,000 ordinary loss.
43. Jim, one of two equal partners of the JJ Partnership, a general partnership, contributed business property with an adjusted basis to him of $15,000 and a fair market value of $10,000 to the JJ Partnership. Jim's capital account was credited with $10,000. The property later was sold for $12,000. As a result of this sale, how much gain or loss must Jim report on his personal income tax return?
a. $1,000 gain.
b. $1,500 loss.
c. $2,000 gain.
d. $3,000 loss.
44. Ronald and Roy formed an equal partnership, R&R Partnership, a general partnership, on January 1, 2012. Ronald contributed $100,000 in exchange for his one-half interest in R&R partnership. Roy contributed land worth $100,000 and with an adjusted basis to Roy of $30,000 in exchange for his one-half interest in the partnership. Roy is a real estate developer, and at the time of the contribution, the land was inventory in his hands. The land is a capital asset in the hands of R&R Partnership. If R&R Partnership sells the land in 2018 to an unrelated taxpayer for $180,000,how much gain will be recognized by R&R Partnership and what will be the character of the gain?
a. $80,000, all of which gain will be ordinary income
b. $150,000, all of which gain will be capital gain.
c. $150,000, all of which gain will be ordinary income.
d. $150,000, consisting of $80,000 capital gain and $70,000 ordinary income.
45. At the beginning of 2012, Margaret's adjusted basis in her 30 percent interest in MP Partnership, a general partnership, was $3,000. During 2012, Margaret did not make any additional contributions to MP Partnership, and Margaret's share of MP Partnership liabilities did not change. During 2012, MP Partnership distributed $5,000 to Margaret, and MP Partnership had the following items of partnership income, deduction, gain and loss for 2012:
Taxable income $15,000
Tax-exempt interest $6,000
Section 1231 loss ($10,000)
What is Margaret's adjusted basis in her partnership interest in MP Partnership at the end of 2012?
a. 0.
b. $1,300.
c. $9,000.
d. $2,700.
