Question: Cooper National is incorporated in Alabama. It

> On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is payable in five installments, with the first payment due next year. Because Silver did not elect out of the instal

> Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the

> At the start of the current year, Blue Corporation (a calendar year taxpayer) has accumulated E & P of $100,000. Blue’s current E & P is $60,000, and at the end of the year, it distributes $200,000 ($100,000 each) to its equal shareholders, Pam and Jon.

> Mitchell, a calendar year taxpayer, is the sole proprietor of a fast-food restaurant. His adjusted basis for the building and the related land is $450,000. On March 12, 2017, state authorities notify Mitchell that his property is going to be condemned so

> Crane Corporation has 2,000 shares of stock outstanding. It redeems 500 shares for $370,000 when it has paid-in capital of $300,000 and E & P of $1.2 million. The redemption qualifies for sale or exchange treatment for the shareholder. Crane incurred $13

> Broadbill Corporation (E & P of $650,000) has 1,000 shares of common stock outstanding. The shares are owned by the following individuals: Tammy, 300 shares; Yvette, 400 shares; and Jeremy, 300 shares. Each of the shareholders paid $50 per share for the

> The gross estate of Raul, decedent, includes stock in Iris Corporation (E & P of $3 million) valued at $2.5 million. At the time of his death, Raul owned 60% of the Iris stock outstanding, and he had a basis of $420,000 in the stock. The death taxes and

> Ashby and Curtis, married professionals, have a 2-year-old son, Jason. Curtis works full-time as an electrical engineer, but Ashby has not worked outside the home since Jason was born. As Jason is getting older, Ashby thinks that Jason would benefit from

> Tyneka inherited 1,000 shares of Aqua, Inc. stock from Joe. Joe’s basis was $35,000, and the fair market value on July 1, 2017 (the date of death) was $45,000. The shares were distributed to Tyneka on July 15, 2017. Tyneka sold the stock on July 30, 2018

> Wanda is considering selling two personal use assets that she owns. One has appreciated in value by $20,000, and the other has declined in value by $17,000. Wanda believes that she should sell both assets in the same tax year so that the loss of $17,000

> Robert and Lori (Robert’s sister) own all of the stock in Swan Corporation (E & P of $1 million). Each owns 500 shares and has a basis of $85,000 in the shares. Robert wants to sell his stock for $600,000, the fair market value, but he will continue to b

> Cyan Corporation (E & P of $700,000) has 4,000 shares of common stock outstanding. The shares are owned as follows: Angelica, 2,000 shares; Dean (Angelica’s son), 1,500 shares; and Walter (Angelica’s uncle), 500 shares. In the current year, Cyan redeems

> Stork Corporation (E & P of $850,000) has 1,000 shares of common stock outstanding. The shares are owned by the following individuals: Lana Johnson, 400 shares; Lori Jones (Lana’s mother), 200 shares; and Leo Jones (Lana’s brother), 400 shares. Lana paid

> Rita retired from public accounting after a long and successful career of 45 years. As part of her retirement package, she continues to share in the profits and losses of the firm, albeit at a lower rate than when she was working fulltime. Because Rita w

> Alicia sold her personal residence to Rick on June 30 for $300,000. Before the sale, Alicia paid the real estate tax of $4,380 for the calendar year. For income tax purposes, the deduction is apportioned as follows: $2,160 to Alicia and $2,220 to Rick. W

> Jayden, a calendar year taxpayer, paid $16,000 in medical expenses and sustained a $20,000 casualty loss in 2017. He expects $12,000 of the medical expenses and $14,000 of the casualty loss to be reimbursed by insurance companies in 2018. Before consider

> Shonda owns 1,000 of the 1,500 shares outstanding in Rook Corporation (E & P of $1 million). Shonda paid $50 per share for the stock seven years ago. The remaining stock in Rook is owned by unrelated individuals. What are the tax consequences to Shonda i

> Silver Corporation has 2,000 shares of common stock outstanding. Howard owns 600 shares, Howard’s grandfather owns 300 shares, Howard’s mother owns 300 shares, and Howard’s son owns 100 shares. In addition, Maroon Corporation owns 500 shares. Howard owns

> How would your answer to parts (a) and (b) of Problem 49 differ if Julio were a corporate shareholder (in the 34% tax bracket) rather than an individual shareholder and the stock ownership in Gray Corporation represented a 25% interest? Information from

> Julio Gonzales is in the 33% tax bracket. He acquired 2,000 shares of stock in Gray Corporation seven years ago at a cost of $50 per share. In the current year, Julio received a payment of $150,000 from Gray Corporation in exchange for 1,000 of his share

> Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $30,000 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that

> Louis owns three pieces of land with an adjusted basis as follows: parcel A, $75,000; parcel B, $125,000; and parcel C, $175,000. Louis sells parcel A to his uncle for $50,000, parcel B to his partner for $120,000, and parcel C to his mother for $150,000

> Employees at the Hobby Hut requested that the company provide assistance in locating professional-quality child care services during business hours. The Hut, a C corporation, contracts with the local Kiddie Kare agency to provide Hut employees with infor

> Jacob Corcoran bought 10,000 shares of Grebe Corporation stock two years ago for $24,000. Last year, Jacob received a nontaxable stock dividend of 2,000 shares in Grebe Corporation. In the current tax year, Jacob sold all of the stock received as a divid

> Parrot Corporation is a closely held company with accumulated E & P of $300,000 and current E & P of $350,000. Tom and Jerry are brothers; each owns a 50% share in Parrot, and they share management responsibilities equally. What are the tax consequences

> Anna received tangible personal property with a fair market value of $65,000 as a gift in 2015. The donor had purchased the property for $77,000 and had taken $77,000 of depreciation. Anna used the property in her business. Anna sells the property for $2

> Iris Corporation owns 30% of Fresia Corporation’s stock. On November 15, Fresia Corporation, with current E & P of $320,000, distributes land (fair market value of $100,000; basis of $160,000) to Iris. The land is subject to a liability of $80,000, which

> Cerulean Corporation has two equal shareholders, Eloise and Olivia. Eloise acquired her Cerulean stock three years ago by transferring property worth $700,000, basis of $300,000, for 70 shares of the stock. Olivia acquired 70 shares in Cerulean Corporati

> At the beginning of the year, Penguin Corporation (a calendar year taxpayer) has accumulated E & P of $55,000. During the year, Penguin incurs a $36,000 loss from operations that accrues ratably. On October 1, Penguin distributes $40,000 in cash to Holly

> Suzanne owns interests in a bagel shop, a lawn and garden store, and a convenience store. Several full-time employees work at each of the enterprises. As of the end of November of the current year, Suzanne has worked 150 hours in the bagel shop, 250 hour

> Corporate shareholders typically prefer dividend treatment on a stock redemption. Why?

> If a redemption is treated as a dividend (“nonqualified stock redemption”), what happens to the basis of the stock redeemed?

> A calendar year corporation has substantial accumulated E & P, but it expects to incur a deficit in current E & P for the year due to significant losses in the last half of the year. A cash distribution to its shareholders on January 1 should result in a

> Sheila sells land to Elane, her sister, for the fair market value of $40,000. Six months later when the land is worth $45,000, Elane gives it to Jacob, her son. (No gift tax resulted.) Shortly thereafter, Jacob sells the land for $48,000. a. Assuming tha

> Describe the effect of a distribution in a year when the distributing corporation has any of the following: a. A deficit in accumulated E & P and a positive amount in current E & P. b. A positive amount in accumulated E & P and a deficit in current E & P

> Jimmy Limited added elevators, access ramps, and several technological improvements to the 1923 building in which it operates a consulting business. Jimmy is an LLC with five full-time employees and about $3 million in gross receipts. The improvements we

> Joanne is in the 28% tax bracket and owns depreciable business equipment that she purchased several years ago for $135,000. She has taken $100,000 of depreciation on the equipment, and it is worth $55,000. Joanne’s niece, Susan, is starting a new busines

> In determining Blue Corporation’s current E & P for 2017, how should taxable income be adjusted as a result of the following transactions? a. A capital loss carryover from 2016, fully used in 2017. b. Nondeductible meal expenses in 2017. c. Interest on m

> Angie and her daughter, Ann, who are the only shareholders of Bluebird Corporation, each paid $100,000 four years ago for their shares in Bluebird. Angie also owns 20% of the stock in Redbird Corporation. The Redbird stock is worth $500,000, and Angie’s

> Explain the requirements for a redemption to pay death taxes. What are the tax consequences of a redemption to pay death taxes for the shareholder and the corporation?

> Tammy and Barry formed Pheasant Corporation several years ago in a transaction that qualified under § 351. Both shareholders serve as officers and on the board of directors of Pheasant. In the current year, Pheasant Corporation redeemed all of Barry’s sh

> Briefly discuss the requirements for a redemption to qualify as a not essentially equivalent redemption.

> Do the stock attribution rules apply to all stock redemptions? Explain.

> What is the significance of the term material participation? Why is the extent of a taxpayer’s participation in an activity important in determining whether a loss from the activity is deductible or nondeductible?

> Chao, Louis, and Mari, unrelated individuals, own all of the shares of Cerise Corporation. All three shareholders have been active in the management of Cerise since its inception. In the current year, Chao wants to retire and sell all of her shares in th

> Helene and Pauline are twin sisters who live in Louisiana and Mississippi, respectively. Helene is married to Frank, and Pauline is married to Richard. Frank and Richard are killed in an auto accident in 2017 while returning from a sporting event. Helene

> Pink Corporation has several employees. Their names and salaries are listed below. Judy…………………………………………………$470,000 Holly (Judy’s daughter)……………………….100,000 Terry (Judy’s son)……………………………….100,000 John (an unrelated third party)……………320,000 Holly and Ter

> On January 1, 2008, Stephanie Bridges acquired depreciable real property for $50,000. She used straight-line depreciation to compute the asset’s cost recovery. The asset was sold for $96,000 on January 3, 2017, when its adjusted basis was $38,000. a. Wha

> Whether compensation paid to a corporate employee is reasonable is a question of fact to be determined from the surrounding circumstances. How would the resolution of this problem be affected by each of the following factors? a. The employee owns no stoc

> Samantha is the president and sole shareholder of Toucan Corporation. She is paid an annual salary of $500,000, while her son, Aaron, the company’s chief financial officer, is paid a salary of $290,000. Aaron works for Toucan on a part-time basis and spe

> Tangerine Corporation is considering a property distribution to its shareholders. \If appreciated property is to be used, does it matter to Tangerine whether \the property distributed is a long-term capital asset or property subject to depreciation \reca

> Raven Corporation owns three machines that it uses in its business. It no longer needs two of these machines and is considering distributing them to its two shareholders as a property dividend. All three machines have a fair market value of $20,000 each.

> Ochre Corporation’s board of directors decides to distribute property to its shareholders rather than pay a cash dividend. Why might Ochre’s board make this decision?

> Assume the same facts as in Question 5, except that noncash property is distributed. What factors must be considered when determining how the distribution is treated for tax purposes by Orange Corporation?

> Orange Corporation distributes $200,000 in cash to each of its three shareholders: Sandy, Byron, and Fuchsia Corporation. What factors must be considered when determining how the distribution is treated for tax purposes by the shareholders?

> Discuss the rationale for the reduced tax rates on dividends paid to individuals.

> Dan bought a hotel for $2,600,000 in January 2013. In May 2017, he died and left the hotel to Ed. While Dan owned the hotel, he deducted $289,000 of cost recovery. The fair market value in May 2017 was $2,800,000. The fair market value six months later w

> Larry is the sole proprietor of a trampoline shop. During 2017, the following transactions occurred: • Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation proceeds were $15,000. The land, acquired in 1986, had

> Review Examples 49 and 51 in the text. In both examples, the taxpayer’s AGI is $129,400 even though in Example 51 there is $700 of nonrecaptured § 1231 loss from 2016. Explain why the two AGI amounts are the same.

> Lucy sells her partnership interest, a passive activity, with an adjusted basis of $305,000 for $330,000. In addition, she has current and suspended losses of $28,000 associated with the partnership and has no other passive activities. Calculate Lucy’s t

> Derk owns 250 shares of stock in Rose Corporation. The remaining 750 shares of Rose are owned as follows: 150 by Derk’s daughter, 200 by Derk’s aunt, and 400 by a partnership in which Derk has an 80% interest. Determine the number of shares Derk owns (di

> Caramel Corporation has 5,000 shares of stock outstanding. In a qualifying stock redemption, Caramel distributes $145,000 in exchange for 1,000 of its shares. At the time of the redemption, Caramel has paid-in capital of $800,000 and E & P of $300,000. C

> Which of the following individuals qualify for the earned income credit? a. Thomas is single, 21 years old, with no qualifying children. His income consists of $9,000 in wages. b. Shannon, who is 27 years old, maintains a household for a dependent 11-yea

> Robin Corporation would like to transfer excess cash to its sole shareholder, Adam, who is also an employee. Adam is in the 28% tax bracket, and Robin is in the 34% bracket. Because Adam’s contribution to the business is substantial, Robin believes that

> On January 1 of the current year, Rhondell Corporation has accumulated E & P of $13,000. Current E & P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to Ap

> At the beginning of the year, Myrna Corporation (a calendar year taxpayer) has E & P of $32,000. The corporation generates no additional E & P during the year. On December 31, the corporation distributes $50,000 to its sole shareholder, Abby, whose stock

> Rosalie owns 50% of the outstanding stock of Salmon Corporation. In a qualifying stock redemption, Salmon distributes $80,000 to Rosalie in exchange for one-half of her shares, which have a basis of $100,000. Compute Rosalie’s recognized loss, if any, on

> During the current year, Gnatcatcher, Inc., (E & P of $1 million) distributed $200,000 each to Brandi and Yuen in redemption of some of their Gnatcatcher stock. The two shareholders acquired their shares five years ago. Each shareholder is in the 33% tax

> What are the tax consequences to Euclid from the following independent events? a. Euclid bought 500 shares of common stock five years ago for $50,000. This year, Euclid receives 20 shares of common stock as a nontaxable stock dividend. What is Euclid’s b

> Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111). She also writes computer software programs for tax practi

> In late 2016, Randy and Rachel Erwin paid $7,000 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson. The adoption becomes final in 2017, and the Erwins then pay an additional $8,000 in adoption fee

> Deerwood Corporation lends its principal shareholder, Lafayette, $500,000 on July 1 of the current year. The loan is interest-free and payable on demand. On December 31, the imputed interest rules are applied. Assume that the Federal rate is 3%, compound

> Quinlan has ample E & P to cover any distributions made during the year. One distribution made to a shareholder consists of a property with an adjusted basis of $150,000 and a fair market value of $90,000. What are the tax consequences of this distributi

> In the current year, Ed invests $30,000 in an oil partnership. He has taxable income for the current year of $2,000 from the oil partnership and withdraws $10,000. What is Ed’s at-risk amount at the end of the year?

> Global Corporation distributed property with an $850,000 fair market value and a $415,000 adjusted basis to one of its shareholders. The property was subject to a $230,000 mortgage, which the shareholder assumed. Global has ample E & P to cover any distr

> Ahmed Zinna (16 Southside Drive, Charlotte, NC 28204), one of your clients, owns two retail establishments in downtown Charlotte and has come to you seeking advice concerning the tax consequences of complying with the Americans with Disabilities Act. He

> Ash, Inc., a closely held personal service corporation, has $100,000 of passive activity losses. In addition, Ash has $80,000 of active business income and $20,000 of portfolio income. How much of the passive activity loss may Ash use to offset the other

> Lynn Jones, Shawn, Walt, and Donna are trying to decide whether they should organize a corporation and transfer their shares of stock in several corporations to this new corporation. All of their shares are listed on the New York Stock Exchange and are r

> Sarah is the sole owner of Bluegrass Corporation. The basis and value of her stock investment in Bluegrass are approximately $100,000. In addition, she manages Bluegrass’s operations on a full-time basis and pays herself an annual salary of $40,000. Beca

> Tim is a real estate broker who specializes in commercial real estate. Although he usually buys and sells on behalf of others, he also maintains a portfolio of property of his own. He holds this property, mainly unimproved land, either as an investment o

> On May 2, 1987, Hannah Weather (Social Security Number: 111-22-3333) acquired residential real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the building. On August 20, 2016, the building, which then had an adjusted

> Assume in Problem 36 that Jane receives the 50 shares of Osprey Corporation stock in consideration for the appreciated property and for the provision of accounting services in organizing the corporation. The value of Jane’s services is $35,000. a. What g

> As sole heir, Dazie receives all of Mary’s property (adjusted basis of $1,400,000 and fair market value of $3,820,000). Six months after Mary’s death in 2017, the fair market value is $3,835,000. a. Can the executor of Mary’s estate elect the alternate v

> Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have decided that additional contributions of capital are needed if Peach is to remain successful in its competitive industry. The two shareholders have agreed

> Ann and Bob form Robin Corporation. Ann transfers property worth $420,000 (basis of $150,000) for 70 shares in Robin Corporation. Bob receives 30 shares for property worth $165,000 (basis of $30,000) and for legal services (worth $15,000) in organizing t

> John organized Toucan Corporation 10 years ago. He contributed property worth $1 million (basis of $200,000) for 2,000 shares of stock in Toucan (representing 100% ownership). John later gave each of his children, Julie and Rachel, 500 shares of the stoc

> Michael Kennedy (1635 Maple Street, Syracuse, NY 13201) exchanges property (basis of $200,000 and fair market value of $850,000) for 75% of the stock of Red Corporation. The other 25% is owned by Sarah Mitchell, who acquired her stock several years ago.

> Jane, Jon, and Clyde incorporate their respective businesses and form Starling Corporation. On March 1 of the current year, Jane exchanges her property (basis of $50,000 and value of $150,000) for 150 shares in Starling Corporation. On April 15, Jon exch

> Troy’s financial records for the year reflect the following: Interest income from bank savings account………………..$ 900 Taxable annuity receipts……………………………………………….1,800 City ad valorem property tax on investments…………………125 Investment interest expense…………………

> Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom’s research-credit base amount for the year is $32,800. a. Determine Tom’s inc

> Tom and Gail form Owl Corporation with the following consideration: The installment note has a face amount of $350,000 and was acquired last year from the sale of land held for investment purposes (adjusted basis of $240,000). As to these transactions,

> On June 1, 2013, Skylark Enterprises (not a corporation) acquired a retail store building for $500,000 (with $100,000 being allocated to the land). The store building was 39-year real property, and the straight-line cost recovery method was used. The pro

> Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration: Assume that the value of each share of Kingfisher stock is $3,000. As to these transactions, provide the following information: a. Seth’s recogniz

> Frank, Cora, and Mitch are equal shareholders in Purple Corporation. The corporation’s assets have a tax basis of $50,000 and a fair market value of $600,000. In the current year, Frank and Cora each loan Purple Corporation $150,000. The notes to Frank a

> Ira Cook is planning to make a charitable contribution to the Boy Scouts of Crystal, Inc. stock worth $20,000. The stock has an adjusted basis of $15,000. A friend has suggested that Ira sell the stock and contribute the $20,000 in proceeds rather than c

> Gigi transfers real estate (basis of $60,000 and fair market value of $40,000) to Monarch Corporation in exchange for shares of § 1244 stock. (Assume that the transfer qualifies under § 351.) a. What is the basis of the stock to Gigi? (Gigi and Monarch d

> Three years ago and at a cost of $40,000, Paul Sanders acquired stock in a corporation that qualified as a small business corporation under § 1244. A few months after he acquired the stock, when it was still worth $40,000, he gave it to his brother, Mike

> Sam Upchurch, a single taxpayer, acquired stock in Hummer Corporation that qualified as a small business corporation under § 1244 at a cost of $100,000 three years ago. He sells the stock for $10,000 in the current tax year. a. How will the loss be treat

> Stock in Jaybird Corporation (555 Industry Lane, Pueblo, CO 81001) is held equally by Vera, Wade, and Wes. Jaybird seeks additional capital in the amount of $900,000 to construct a building. Vera, Wade, and Wes each propose to lend Jaybird Corporation $3

> Emily Patrick (36 Paradise Road, Northampton, MA 01060) formed Teal Corporation a number of years ago with an investment of $200,000 cash, for which she received $20,000 in stock and $180,000 in bonds bearing interest of 8% and maturing in nine years. Se