A The sale by a trade association of publications used as course materials for

A the sale by a trade association of publications

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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 materialsby the trade association for seminars oriented toward its members is
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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: 195Tracy 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 $50,000 cash. There was no agreement between Tracy and Roy for any allocation of the sales price. The basis and fair market value of the partnership’s assets (there are no liabilities) are as follows:AssetsBasisFair Market ValueCash$ 40,000$ 40,000Unrealized Receivables036,000Inventory40,00092,000Land40,00032,000
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Total$120,000$200,000What is the amount and character of Tracy’s gain or loss?A.$0 ordinary income, $0 capital gainB.$22,000 ordinary income, $2,000 capital lossAnswer (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 unrealizedreceivables 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 gainD.$10,000 ordinary income, $10,000 capital gainQuestion: 196If an exempt organization is a corporation, the tax on unrelated business taxable income isA.Computed at corporate income tax rates.
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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: 197James 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 Eltonof $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.$40,000B.$25,000C.$50,000D.$35,000
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  • Spring '14
  • FredericIhrke
  • Taxation in the United States, partner, Income tax in the United States

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