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James and Ryann are good friends. They decide to open a sports equipment store together because of their love of the outdoors. They each own 50 percent in SportsCrazy, LLC, which is taxed as a partnership. Ryann manages the business. James has a thriving tax practice and therefore does not participate in the operation of the business. Which of the following is true? a. Only the income distributed to Ryann is considered passive income. b. Only the income distributed to James is considered passive income. c. The income distributed to both Ryann and James is considered passive income. d. The income distributed to both Ryann and James is considered active income. Paul, David, Kristina, and Rachel are partners in MovieMakers, LLC. They all participate in the business to some extent and there are no other employees. Given the following activities, which of these individuals are clearly material participants? 2. Paul has a job outside of the business but does provide about 125 hours a year to help mar- ket the business. David devotes all of his time to the business and generally devotes 60 hours per week to the business. Kristina has materially participated in the business for the last 7 years, however she only dedicated about 50 hours this year because she had a baby in January. Rachel devotes very little time to the business and only helps on an as-needed basis. She rarely helps more than 2 or 3 hours per month. a. David only. b. David and Kristina. c. David and Paul. d. David, Kristina, Paul and Rachel. 3. Cody owns a 10 percent interest in Creative Works, LLP. Cody originally invested $500,000 and has personally taken losses from the partnership of $200,000. The partnership took out a nonrecourse loan of $800,000. What is Cody's at-risk amount? a. $300,000. b. $500,000. c. $1,100,000. d. $1,300,000. chapter 14 4. Kali is a 20 percent owner in CheerSquad, LLC, a local gym for middle school and high school cheerleaders.The gym provides private coaches to help young cheerleaders learn stunts and improve their overall cheer performance. Kali does not materially participate. Kali contributed $200,000 initially. During the prior years she has been allocated $200,000 in income and $300,000 in losses. After a freak accident during the current year in which one of the cheerleaders was critically injured doing a stunt, the business lost many customers. The business allocated a $150,000 loss to Kali for the current year. What is Kali's suspended loss due to at-risk rules? a. $0. b. $50,000 C. $100,000. d. $150,000. Lisa is a 10 percent owner in HKAccounting, LLC, a review company for the CPA exam. She is also a 20 percent owner in MyPuppy, LLC a rescue organization for dogs. She does not materially participate in either company. Her at-risk and loss/income for the current year is as follows: HKAccounting- At-risk = $800,000; Income of $150,000 MyPuppy-At-risk = $200,000; Loss of $350,000 5. Lisa also has wage income of $75,000. How much of the loss can she write off in the current year? a. $150,000 b. $200,000. c. $225,000 d. $350,000

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