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A taxpayer can carry any NOL incurred forward 20 years.

A) True
B) False

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True

Purple Corporation,a personal service corporation,earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?

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A personal service corporation cannot of...

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During the current year,Ryan performs personal services as follows: 700 hours in his management consulting practice,650 hours in a real estate development business,and 550 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ryan files a joint return with his wife whose salary is $125,000.Discuss the character and treatment of the income and losses generated by these activities.

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Ryan is considered a material participan...

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Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective,Linda will be better off if Activity A is not passive.

A) True
B) False

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Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As he works only 30 hours per week in this job,he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows: Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As he works only 30 hours per week in this job,he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows: Lloyd has full-time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage? Lloyd has full-time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage?

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The basic issue relates to how the car repair shops and ice cream parlors should be grouped under the passive activity rules so as to maximize the tax benefit to Lloyd.The $400,000 salary is active income.If the participation levels stay the same in the ice cream parlor and car repair shop businesses,all profits and losses will be passive,assuming each location is a separate activity.As a result,a net passive loss of $55,000 ($89,000 loss + $41,000 loss + $15,000 loss - $56,000 profit - $34,000 profit)would be suspended and not be available to offset his salary.To mitigate this result,three options should be considered.Option 1 is based on the significant participation activity rule.If all of the businesses are treated as separate activities,Lloyd would not be considered a material participant,even under the significant participation activity rule.Under the significant participation activity rule,the car repair shops would be considered significant activities,but the ice cream parlors would not.But even with the car repair shops,the total participation is not expected to exceed the more-than-500 hour threshold (140 + 170 + 180 = 490).If Lloyd could participate 11 more hours in any of the car repair shop businesses,they would be treated as active and the net loss from the car repair shops of $145,000 ($89,000 + $41,000 + $15,000)could be offset against his salary.Further,if Lloyd does not participate any more in the other ice cream parlor businesses,their combined $90,000 of income will be reported as passive income.This characterization as passive could be helpful if Lloyd were to acquire additional businesses in the future that produce passive losses.Under option 2,both the ice cream parlor and car repair shop businesses could be combined as a "single activity" based on common ownership.Because Lloyd has participated more than 500 hours in the five businesses,the net loss of $55,000 would be considered active and could be used to offset his salary.Option 3 would combine the car repair shops as one activity based on product while the ice cream parlors would be treated as a separate activity based on product.As with option 1,if Lloyd could participate 11 more hours in any of the car repair shop businesses,they would be treated as active,and the net loss of $145,000 ($89,000 + $41,000 + $15,000)could be offset against his salary.Also,he could treat the ice cream parlors as a single business and the net income would be passive,which could be helpful in the future if other passive ventures would be acquired.

In 2013,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?


A) Since Arnold has only $80,000 of capital at risk,he cannot deduct any more than this amount against his other income.
B) Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions) .
C) If Arnold has taxable income of $40,000 from the partnership in 2014 and there are no other transactions that affect his at-risk amount,he can use all of the $20,000 loss carried over from 2013.
D) Arnold's $100,000 loss is nondeductible in 2013 and 2014 under the passive loss provisions.
E) All of the statements are correct.

F) A) and B)
G) B) and D)

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From January through November,Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December,Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.

A) True
B) False

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Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year.His current loss from the activity is $35,000 and he has no passive activity income.At the end of the current year,which of the following statements is incorrect?


A) Wes has a loss of $25,000 suspended under the passive loss rules.
B) Wes has an at-risk amount in the activity of $0.
C) Wes has a loss of $10,000 suspended under the at-risk rules.
D) Wes has a loss of $35,000 suspended under the passive loss rules.
E) None of the above is incorrect.

F) A) and D)
G) None of the above

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John files a return as a single taxpayer.In 2013,he had the following items: John files a return as a single taxpayer.In 2013,he had the following items: Determine John's AGI for 2013. A) ($5,000) . B) $0. C) $45,000. D) $51,000. E) None of the above. Determine John's AGI for 2013.


A) ($5,000) .
B) $0.
C) $45,000.
D) $51,000.
E) None of the above.

F) B) and C)
G) A) and B)

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A personal casualty loss deduction may be allowed for losses resulting from termites.

A) True
B) False

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In 2013,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2013,her share of the partnership loss is $90,000.In 2014,her share of the partnership loss is $50,000.How much can Emily deduct in 2013 and 2014?

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Although the passive loss rules do not a...

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Oriole Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Under an exception,Oriole can deduct the $23,000 loss if it is a personal service corporation.

A) True
B) False

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Bruce,who is single,had the following items for the current year: Bruce,who is single,had the following items for the current year: Determine Bruce's AGI for the current year. A) $27,000. B) $38,000. C) $42,000. D) $47,000. E) None of the above. Determine Bruce's AGI for the current year.


A) $27,000.
B) $38,000.
C) $42,000.
D) $47,000.
E) None of the above.

F) None of the above
G) B) and C)

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If a taxpayer sells their § 1244 stock at a loss,all of the loss will be ordinary loss.

A) True
B) False

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Describe the types of activities and taxpayers that are subject to the at-risk rules.

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The at-risk provisions limit the deducti...

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Orange Corporation,a closely held (non-personal service)C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

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A closely held (non-personal service)C c...

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Jack owns a 10% interest in a partnership (not real estate)in which his at-risk amount is $42,000 at the beginning of the year.During the year,the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

A) True
B) False

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False

Jon owns an apartment building in which he is a material participant and a computer consulting business.Of the 2,000 hours he spends on these activities during the year,55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.


A) The computer consulting business is a passive activity but the apartment building is not.
B) The apartment building is a passive activity but the computer consulting business is not.
C) Both the apartment building and the computer consulting business are passive activities.
D) Neither the apartment building nor the computer consulting business is a passive activity.
E) None of the above.

F) A) and B)
G) B) and E)

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Nell sells a passive activity with an adjusted basis of $45,000 for $105,000.Suspended losses attributable to this property total $45,000.The total gain and the taxable gain are:


A) $60,000 total gain; $105,000 taxable gain.
B) $10,000 total gain; $15,000 taxable gain.
C) $60,000 total gain; $0 taxable gain.
D) $60,000 total gain; $15,000 taxable gain.
E) None of the above.

F) C) and D)
G) B) and D)

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Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.

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The passive loss rules require income an...

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