An S Corporation has the following information for its taxable year:

net income before the items below: $60,000

Salary to employee $(18,000)
Rental income $22,000
Rental expenses $(29,000)
Net Income $35,000

John is a 40% owner of the S corporation, and he performs services for the business.
What is John's self employment income from the corporation, which is subject to self-
employment tax?

A. $0
B. $2,678
C. $35,000
D. $60,000
Answer: B

None of the income from the S corporation will be subject to self-employment tax.
Income from an S corporation is not considered self-employment income.
Richie Rich received a 70% capital interest in a general partnership by contributing the
following:

Item Transferred Richie's Basis FMV

Land $60,000 $100,000
Debt(on Land) N/A $(50,000)
Inventory $10,000 $8,000
Services N/A $2,500

What is Richie's basis in the partnership after the contribution?

A. $20,000
B. $57,500
C. $70,000
D. $110,500
Answer: B

Richie's basis is $57,500, calculated as follows:

Basis of Land $60,000

Debt (30% assumed by other partners) ($15,000)
Inventory (Basis) $10,000
Services (FMV) $2,500

Total Basis After Contribution $57,500