A the sale by a trade association of publications

A. The sale by a trade association of publications used as course materials
for the association’s seminars, which are oriented toward its members.
Answer (A) is correct.
Unrelated business income (UBI) is income from a trade or business,
regularly carried on, that is not substantially related to the charitable,
educational, or other purpose constituting the basis for an
organization’s tax-exempt status. The sale of the educational materials
by the trade association for seminars oriented toward its members is

most likely an activity that is substantially related to the performance
of the exempt purpose of the trade association.
B. The sale of laundry services by an exempt hospital to other hospitals.
C. The sale of heavy duty appliances to senior citizens by an exempt
senior citizens center.
D. Accounting and tax services performed by a local chapter of a labor
union for its members.
Question: 195 Tracy has a one-fourth interest in the TANY Partnership. The adjusted basis of
his interest at the end of the current year is $30,000. He sells his interest in the
TANY Partnership to Roy for $50,000 cash. There was no agreement between
Tracy and Roy for any allocation of the sales price. The basis and fair market
value of the partnership’s assets (there are no liabilities) are as follows:
Assets
Basis
Fair Market Value
Cash
$ 40,000
$ 40,000
Unrealized Receivables
0
36,000
Inventory
40,000
92,000
Land
40,000
32,000

Total
$120,000
$200,000
What is the amount and character of Tracy’s gain or loss?
A. $0 ordinary income, $0 capital gain
B. $22,000 ordinary income, $2,000
capital loss
Answer (B) is correct.
The gain or loss on the sale of the
partnership interest is a capital gain or
loss, subject to long- or short-term
treatment, depending upon the length
of time the selling partner owned the
interest in the partnership. An
exception to this rule applies when the
partnership owns unrealized
receivables or inventory. In this case,
the selling partner must allocate a
portion of the sale proceeds to the
unrealized receivables and to the
inventory and, to that extent, will
realize ordinary income. The unrealized
receivables and the inventory are
Section 751 assets, meaning $22,000
[($52,000 gain from inventory +
$36,000 gain from unrealized
receivables) × 1/4] is ordinary income.
But the gain is only $20,000; thus,
there is a $2,000 capital loss.
C. $20,000 ordinary income, $0 capital
gain
D. $10,000 ordinary income, $10,000
capital gain
Question: 196 If an exempt organization is a corporation, the tax on unrelated business taxable
income is
A. Computed at corporate income tax rates.

Answer (A) is correct.
Unrelated business income (UBI) over $1,000 of a tax-exempt
corporation is subject to tax at corporate regular income tax rates.
B. Abated.
C. Computed at rates applicable to trusts.
D. Credited against the tax on recognized capital gains.
Question: 197 James Elton received a 25% capital interest in Bredbo Associates, a partnership,
in return for services rendered, plus a contribution of assets with a basis to Elton
of $25,000 and a fair market value of $40,000. The fair market value of Elton’s
25% interest was $50,000. How much is Elton’s basis for his interest in Bredbo?
A. $40,000
B. $25,000
C. $50,000
D. $35,000