Compare an owner’s personal liability for debts of a business organized as a sole proprietorship, general partnership, limited partnership, LLP, LLC, and S corporation.
> Calahan Corporation regularly factors its receivables when they are short of cash. This spring they not only factored $325,000 of receivables at 80 percent of their value but sold two company automobiles that they had purchased five months earlier for $4
> Willis Corporation (a calendar-year corporation) purchased $550,000 of used machinery (7-year property) on August 1. No other property was acquired in 2017. a. What is Willis Corporation’s depreciation expense for 2017 and 2018 if Section 179 is not ele
> Barry Corporation sold a machine used in its business for two years for $27,000. The machine originally cost $24,000 and it had an adjusted basis at the time of the sale of $17,000. Determine the amount and type of gain recognized on the sale.
> At the beginning of 2017, AB Corporation (a calendar-year corporation) owned the following assets: On February 1, 2017, AB sold its office furniture. On March 15, 2017, AB sold its computer equipment. Compute AB Corporation’s 2017 depr
> Tatum Corporation (a calendar-year corporation) purchased a building on June 6 of the current year for $300,000, of which $60,000 is for the land. What is the depreciation for the first year if the building is a. a warehouse? b. a rental apartment buil
> What is the effect on total taxes if a corporation with $200,000 of taxable income pays a bonus of $50,000 to its single shareholder-owner who has $100,000 of other taxable income and is taxed at the 28 percent tax rate? What is the total effective tax r
> Two years ago, Warren purchased a computer for $4,000 that was used exclusively for personal purposes until this year. At the beginning of the current year, Warren opened a consulting business as a sole proprietorship and began using the computer solel
> Loser Corporation decides to liquidate and files a plan of liquidation with the IRS. It is unable to sell its assets, so it distributes them to its sole shareholder, Bummer. There are only three assets: inventory (fair market value = $4,000; basis = $3,5
> Beacon Corporation had operated a chain of restaurants for 15 years and owned a small trucking company for 10 years. It decided to sell all the assets of the trucking company (Section 1231 assets) for $1,500,000. The assets had a basis of $900,000 and th
> Sheri owns 800 of the 1,500 outstanding shares of Carney Corporation, which she bought a number of years ago for $20 each. She needs money for her daughter’s tuition but does not want to sell all of her shares in the corporation. Carney has $200,000 in e
> Clarington Corporation, a calendar year taxpayer, had two shareholders, Adam and Eve. Adam owns 40 percent and Eve 60 percent of the corporation’s stock. In each of the following situations, determine how the dividends will be taxed to Adam and Eve and i
> Jenkins Corporation had $675,000 of taxable income last year and $575,000 this year. What is the minimum amount that it must submit for each estimated quarterly tax payment to avoid any penalty for underpayment?
> The Falcon Corporation has $68,000 in taxable income. Its accountant uncovered $87,000 in net positive adjustments and $2,000 of preference items for its alternative minimum taxable income. What are the corporation’s AMTI and AMT?
> Mondial Corporation’s financial accounting records show it had gross revenue of $980,000, cost of goods sold of $420,000, operating expenses of $380,000, and $4,000 of dividends received from a 40-percent-owned owned corporation. Its operating expenses i
> Whitlaw Corporation has $150,000 of gross profit on sales, operating expenses of $60,000 (excluding cost recovery), $4,000 dividend income from a one-percent-owned corporation, a $10,000 capital gain and $15,000 capital loss, a $15,000 Section 179 deduct
> Velvet Corporation has revenues of $340,000 and deductible expenses of $350,000. It also received a $40,000 dividend from a corporation in which it owns 10 percent. What is the corporation’s taxable income?
> Columbo Corporation, a calendar-year corporation, began business in 2014. With the initial capital contributions from its sole shareholder, it purchased a building on March 12 for $250,000. It also purchased the following items, all used, for use in the
> Explain the difference between a realized gain and a recognized gain.
> X, Y, and Z form XYZ Partnership by contributing cash and property as follows: X contributes $40,000 cash for a 20 percent interest. Y contributes property valued at $80,000 for a 40 percent interest. This property has a basis in Y’s hands of $50,000. Fo
> Jim and Angie form the JAZ Partnership with Zoe by contributing $75,000 each to partnership equity. Zoe, the third partner, contributes property with a basis of $50,000 and fair market value of $75,000. The three are equal partners in the partnership. De
> Tinker incorporates his sole proprietorship by transferring a building, equipment, and inventory to the Tinker Corporation in exchange for all its stock. The building has a value of $750,000 and a basis of $800,000, the equipment has a value of $400,000
> Explain the basic provisions of the Coverdell Education Saving plan.
> Explain why Congress added the kiddie tax provisions and which taxpayers are affected by it.
> Under what circumstances will a gift made in trust for a minor child qualify for the annual exclusion?
> What is a present interest and how is it distinguished from a future interest?
> How is the net investment income surtax calculated for a trust? Explain how a trust can avoid this tax.
> What purpose is served by the distributable net income of a trust or estate?
> What are adjusted taxable gifts, and how do they affect the calculation of a decedent’s estate tax?
> Why is the Section 179 expensing election more valuable to a small business than to a large business?
> How do the estate income tax rules encourage a quick distribution of estate assets?
> Sidney is a psychiatrist. Four years ago, he purchased the building in which his office is located for $375,000. Sidney transfers ownership of the building to his daughter, Nora, and signs a leaseback agreement stipulating that he pay annual rent of $35,
> Contrast the difference in bases for an appreciated asset that is given as a gift versus one that is inherited.
> How is the value of estate property determined and what is the alternate valuation date?
> Five years before his death, Troy purchased a $5 million whole life insurance policy on his life and named his son, Don, the beneficiary. Shortly after purchase, Troy transferred the policy to an irrevocable trust, naming his son as trustee. Troy retaine
> Under what circumstances is the face value of life insurance on the decedent’s life included in the decedent’s gross estate?
> What is the lifetime unified credit amount for 2017 and its related exclusion equivalent?
> What is the difference between a partner’s guaranteed payment and his salary?
> Explain the difference between inside and outside basis for partners and the partnership.
> Explain the difference between the entity and aggregate theories applicable to a partnership and give an example of the effect of these theories on partnership transactions.
> Delta Corporation purchased three assets during the current year: a new automobile costing $60,000, used office furniture costing $600,000, and a warehouse costing $850,000 (of which $100,000 is for the land). For which asset(s) should Delta Corporation
> Although partners can generally deduct their share of losses from a partnership, what three things can limit their ability to deduct these losses on their current year’s tax return?
> Explain the difference between the effects of liabilities of an S corporation on a shareholder’s stock basis and the effect of liabilities of a partnership on a partner’s partnership interest basis.
> Explain how an increase or decrease in partnership liabilities can affect the basis of a general partner and a limited partner.
> The Gem Company, a sole proprietorship, provides health insurance for its owner and two employees. The cost per person is $200 per month. Explain how the Gem Company and its sole proprietor will treat this expense.
> What types of taxes may an S corporation have to pay and under what circumstances?
> What is the difference between a prospective S election and a retroactive S election?
> What are the corporate and shareholder restrictions on making an S corporation election?
> How is income allocated to S corporation shareholders? Develop an example to illustrate this procedure.
> Why are partnerships and S corporations required to separately state certain items on the Schedule K rather than combining these items with the organization’s operating profit or loss? Provide examples of the items that must be separately stated.
> What limits are placed on the amount and type of property that can be expensed under Section 179?
> What is the purpose of corporate earnings and profits? Why isn’t taxable income used to determine if a distribution is a dividend?
> What is the purpose of the alternative minimum tax? What is the alternative minimum tax rate for corporations?
> List three items that increase book income and three items that reduce book income when reconciling book to taxable income.
> What is the dividend received deduction? What are the percentages and when do they apply? When is the dividend received deduction limited to a percentage of taxable income?
> What are the ownership requirements for a group of corporations to file a consolidated return? Illustrate.
> What is the purpose of the accumulated earnings tax? What is the penalty tax rate that applies to excess accumulated earnings? How does a company avoid this tax?
> What is the purpose of the personal holding company tax? What is the penalty tax rate that applies to a personal holding company? How does a personal holding company avoid this tax?
> What is the difference in tax treatment for losses realized in a partial liquidation and a complete liquidation?
> What is a corporate liquidation? What are the tax consequences for a corporation that distributes property as part of a complete liquidation? What are the tax consequences to the shareholders?
> What is a corporate redemption? What are the tax consequences to the shareholder in a qualifying redemption? What are they if it is not a qualifying redemption?
> Why would a business elect to use the ADS straight-line method to compute regular income tax depreciation rather than the 200 percent declining-balance method allowed under MACRS?
> List five items that are added to a corporation’s taxable income to determine earnings and profits. List five items that are deducted from a corporation’s taxable income to determine earnings and profits.
> Can a corporation have negative amounts in both its current and accumulated earnings and profits accounts? Explain.
> What is the difference between accumulated and current earnings and profits?
> In what year are casualty losses deducted? What choices are available if the casualty occurs in a presidentially declared disaster area?
> What limits are placed on the deductibility of casualty and theft losses of personal-use property?
> How is a casualty loss that completely destroys business or investment property measured? How is a casualty loss that partially destroys business or investment property measured?
> How is a casualty loss that completely destroys personal-use property measured? How is a casualty loss that partially destroys personal-use property measured?
> What is an indirect exchange? What are the two most common forms of indirect exchanges?
> What is a nonsimultaneous exchange? What are the critical factors in qualifying a nonsimultaneous exchange for tax deferral?
> What is boot? What effect does boot have on a like-kind exchange?
> Is a depreciation deduction allowed for a warehouse used in business in the year it is sold? If yes, explain how it is calculated.
> What is a corporate reorganization? Briefly define each of the types of corporate reorganizations.
> Why do you think businesses are allowed an additional year to find qualifying replacement real estate for realty that is condemned?
> What do you believe led to the conclusion that a sole proprietorship should report its results on the owner’s tax return?
> When a business rents tangible property for use in its business, it may incur up-front costs to acquire the lease on the property. How do you think these leasehold costs are treated for tax purposes?
> Explain the general provisions applicable to a partner transferring property to a partnership in exchange for a partnership interest.
> Locate and read Publication 547: Casualties, Disasters, and Thefts. Where is a casualty loss on a personal-use asset reported? Where is a casualty gain on personal-use property reported?
> Locate and read Publication 544: Sales and Other Disposition of Assets. How is a like-kind exchange reported? If there is a recognized gain, how is that reported?
> The Cabot Corporation has had financial problems for several years. The two shareholders have discussed liquidating the corporation, but they are concerned that they will have to pay a large tax bill because of the corporation’s low basis in its assets a
> When Chet died on March 12, 2017, he owned $900,000 in stock of ABC Corporation and $100,000 in City of Omaha bonds. The ABC Corporation declared a cash dividend on March 1 that was payable to shareholders of record on March 15. In early April, the execu
> The Lincoln Trust is a simple trust whose only investments are in corporate bonds producing interest income. The trustee is thinking about moving some of the investments into municipal bonds.
> At the time of Frank’s death, he had received $6,000 in credit card bills that had not been paid.
> Jorge is a resident and citizen of Spain. He invests $500,000 in Miami Beach real estate. When Jorge died in 2017, he owned $6,000,000 in assets in Spain in addition to the Miami Beach real estate.
> Jennifer plans to establish a trust in which she will place all her income-producing investments. She will be the income beneficiary for the balance of her life, with her son having a remainder interest. She plans to name herself as trustee.
> In year 1, Loren and Tim enter into a property settlement agreement under which Tim agrees to pay $600,000 to Loren in return for the release of her marital rights. The payment is to be made in three annual installments of $200,000 each. Loren and Tim di
> Ten years ago, Carolyn created a revocable trust using marketable securities valued at $500,000. The trust department at the local bank is the trustee. Under the terms of the trust, Carolyn retained a life estate with a remainder interest for her grandch
> How do liabilities assumed by a corporation affect a shareholder transferring property to it in a qualifying Section 351 transfer?
> Martha provides the sole support for her son, David, who lives at home while he attends school. Martha gives David a $40,000 automobile for his 18th birthday.
> The Gemini Corporation, an S corporation, wants to expand its lines of business. To do so quickly, it acquires 85 percent of the stock of Trojan Corporation, a regular C corporation.
> Craig is a 20 percent shareholder in an S corporation and works an average of 20 hours per week in the business. His wife, Lynn, is a full-time employee of the corporation. The corporation provides fully paid health and life insurance benefits for hersel
> ABCD partnership, a calendar-year partnership, has four owners: A owns a 20 percent interest; B a 25 percent interest; C a 40 percent interest; and D the remaining 15 percent interest. Some of the partners have been having difficulty working with each ot
> Carol and her husband own 35 percent each of a land development partnership. Carol owns a piece of land purchased six years ago for $60,000 that has been declining in value. The partnership wants to buy the land for development but is only willing to pay
> Shana is a 20 percent limited partner in the STU partnership. Her basis in her partnership interest is $40,000 when she decides to abandon her partnership interest. The partnership’s balance sheet reports net assets of $203,000, liabilities of $200,000 a
> The owner of a corporation used corporate funds to pay for his home, all the home’s expenses, and numerous other personal expenses. This went on for a number of years until the corporation was audited. The IRS asserted that the use of the corporate funds
> Sweeney was the chairman of Sweeney, Inc., a large hardware and lumber store. When Sweeney became ill, his son took over the business but sold the property and all the inventory of lumber valued at $2,000,000 within a year. Shortly thereafter, Sweeney re
> Seven years ago, the Bonnet Corporation redeemed all of Joe Bonnet’s stock as a complete termination of interest. At the time, Joe signed a waiver of family attribution rules because his three sons retained all their stock. As part of this arrangement, J
> Barry is very dedicated to the arts and has made a career of purchasing copyrights to various art forms. Once purchased, he publicizes these works to capitalize on the copyrights and has been very successful. Last year, he acquired a book manuscript that
> What is the critical requirement of a corporate formation to ensure tax-deferred property transfers to all participants?
> Carlson Manufacturing’s plant was condemned by the federal government to allow for expansion of one of its secured locations for government employees. The government paid the company $6,800,000 for the property that had a basis of $2,500,000 and it moved
