Jessica, a professional violinist with the Lincoln Symphony Orchestra, purchased a 100-yearold antique violin at a cost of $180,000. She thinks that it is a good investment because she knows that it will continue to appreciate in value as a treasured work of art. She plays this violin in concerts and wants to know if she can depreciate it as a business-use asset.
> What types of assets are Section 1231 assets? What types of assets are capital assets? What types of assets are ordinary income assets? Give several examples of each type of asset.
> In 2010, Congress chose to repeal the estate tax for that year, but retained the gift tax. Why do you think they did that?
> Why do you think an S corporation is limited to having common stock with no differences other than voting rights?
> Why do you think services are excluded from the definition of property when a partner receives a partnership interest in exchange for property?
> Explain how a parent–subsidiary controlled group differs from an affiliated controlled group. Develop examples of each to illustrate the differences.
> Why do you think Congress requires the recognition of gain on the distribution of appreciated property but does not allow the recognition of loss on depreciated property in a nonliquidating distribution? Why do you think both gain and loss are recognized
> Bob and Jane, brother and sister, are equal partners in a family partnership that owns 400 shares of the Sibling Corporation. Their grandfather owns the remaining 100 shares of Sibling Corporation. How many shares of stock are owned directly and indirect
> The Blanton Corporation had a deficit in its current earnings and profits of $36,500 for the current year. It has $75,000 in accumulated earnings and profits. It made two distributions to its shareholders. On April 30, it distributed $40,000, and on Nove
> Waltjohn Corporation has $5,000 in CE&P and $10,000 in AE&P. It has two shareholders, Walter and John. On April 1 of the current year, Walter received a $10,000 distribution from the corporation on his Class A common stock. On July 1, John received a $10
> What policy reason do you think explains why losses on the personal-use property of individuals are nondeductible except for a limited amount of loss from involuntary conversions?
> A shareholder receives stock valued at $500,000 and $50,000 cash for two pieces of equipment as part of a Section 351 transaction. He transfers (1) Machine A with a fair market value of $330,000 and a basis of $300,000 and (2) Machine B with a fair marke
> What is Section 291 recapture? Compare this to unrecaptured Section 1250 gains.
> What is the rationale behind a corporation’s increasing its basis in property received in a Section 351 transaction for the gain recognized by the transferor shareholder?
> What is a possible reason for allowing persons to use the provision that allows the deferral of gain or loss for involuntary conversions on property that is sold under the threat of condemnation only?
> Why do you think the specifications for like-kind properties are so different for real property and for personalty?
> Mary had the following transactions involving BMN stock: a. Determine Mary’s gain or loss on each sale, assuming the shares are not specifically identified. b. Determine Mary’s gain or loss on the second sale if she s
> Beth had been using an automobile for personal purposes. In year 2, when she started a business, she began to use the car exclusively for this business at a time when it was worth $12,000. She had purchased the auto in year 1 for $16,000. a. Assuming th
> What are the policy reasons for allowing a portion of the gain on a personal residence to escape taxation?
> In 2017, Gregory, a single person, had $375,000 of ordinary taxable income. He sold Section 1202 stock at a taxable gain of $45,000, his art collection at a taxable gain of $102,000, and stock at a taxable gain of $55,000. Compare the tax result if Congr
> If the netting process for capital gains really has no impact on corporations, why do you think it still remains as part of the tax law?
> Is the treatment of purchased goodwill the same for tax and for GAAP? Explain.
> Your friend is thinking about starting up a new Internet business and would like to know how Web site development costs are treated for tax purposes. What are some of the costs involved in Web site development, and what are the issues involved in determi
> Explain the look-back procedure for Section 1231 assets. Why did this particular provision evolve?
> You are a self-employed individual thinking about buying or leasing a car to use in your business. What information is needed to properly evaluate this lease versus purchase decision?
> List at least 10 differences between taxable income and accounting income.
> Locate and read Publication 550: Investment Income and Expenses. How do you report a wash sale?
> Go to the IRS Web site (www.irs.gov) and locate the instructions for Form 709. Can spouses who elect to gift split file a joint gift tax return? Explain how they must file.
> Go to the IRS Web site (www.irs.gov) and locate the form that a corporation uses to make an S election and its related instructions. Summarize the information required on the form. Do the instructions include information on how to obtain an extension of
> Using the IRS Web site, www.irs.gov, locate the information and instructions for reporting the sale of a personal residence. Write a summary of what the taxpayer needs to do to elect Section 121 gain exclusion and how the sale is reported.
> Locate the Schedule D and the accompanying instructions for both an individual and a corporation on the IRS Web site, www.irs.gov. Compare the length of the two forms and the instructions as they appear on the Web site. Summarize your findings.
> Go to the IRS Web site (www.irs.gov) and locate Publication 538: Accounting Periods and Methods. How does a corporation make an election to use a 52-53-week tax year?
> Go to the IRS Web site (www.irs.gov) and locate instructions for Form 1120. If a corporation has less than $250,000 of total receipts and total assets at the end of the tax year, which schedules included with Form 1120 can it omit?
> Go to the IRS Web site (www.irs.gov) and locate the instructions for Form 706-NA for the estate of a nonresident alien. a. What is the definition of a nonresident alien decedent? b. Under what circumstances must the executor for a nonresident alien dece
> Chester provides you with the following income information for years 1 through 3, exclusive of capital loss carryovers: Determine the amount and type of capital loss deduction each year, if any, and identify any carryover to the following year. Shor
> Samantha is a single parent providing the sole support for her six-year-old daughter, Hillary. They live in an area where the public school is known to have problems with drugs and other crimes. Samantha wants to send Hillary to a private school to avoid
> Two years ago, Herbert, a widower, made a gift of marketable securities to his 35-year-old daughter, Sabrina, on which he paid a federal gift tax of $3 million. When Herbert died in 2017, his estate had been greatly reduced in value due to his having giv
> Joe, June, and Jim—coworkers—decide that they want to start their own business. Joe has $200,000 to contribute, June has equipment valued at $100,000 (basis = $90,000), and Jim has real estate suitable for the business valued at $200,000 (basis = $110,00
> Cheryl owned six horses that she and her family used for riding and occasionally showing in hunter-jumper competitions. At the beginning of May, one of the horses showed signs of severe illness and was diagnosed with equine encephalitis. She was required
> The partners of JPG Partnership want to change the form of entity from a partnership to a corporation. The corporation can be formed in several ways: The partnership can distribute the assets to the partners who then contribute the assets to the corporat
> Roberta Wynn has been a partner in the Cato Partnership for a number of years. With the permission of the other partners, she sells her partnership interest to a third party. At the time of sale, her basis in her partnership is only $100. For the portion
> June owned all the stock of Corporation A. Over the years, the corporation had been very successful but had never paid any dividends, although it had substantial earnings and profits. June wanted to expand into another line of business as a sole propriet
> Locate and read Internal Revenue Code Sections 267, 318, and 544. Compare the definition of family in each of these sections.
> Several years ago, Congress repealed the General Utilities Doctrine. Locate and read General Utilities & Operating Co. v. Helvering, 296 US 200 (1935). Summarize this case. What was the General Utilities Doctrine, and how did its repeal affect current tr
> Locate and read Section 385 of the Internal Revenue Code and develop a comprehensive list of factors that indicate legitimate debt. What is the status of the regulations that are to expand on this Code section?
> Sharon has salary income of $68,000, a net short-term capital gain of $15,000, and a net long-term capital loss of $24,000. What is Sharon’s adjusted gross income if she has no other income items?
> Sheralyn was in the wholesale distribution business for pecans and peanuts grown in Georgia. She and her brother owned and operated several warehouses. Seven years ago, they purchased property for another warehouse in the eastern part of Georgia because
> A subsidiary of Corporation A, an electrical utility located in Springfield, and a subsidiary of Corporation B, a diversified manufacturer also located in Springfield, formed a joint venture under the general partnership laws of their state. The partners
> A number of specific transactions do not necessarily follow the general tax provisions applicable to property transactions. Following are a group of transactions that are subject to specific tax provisions. For each of the situations, you are to answer t
> Juan owns 40 percent and Mario owns 60 percent of Crispy Donuts, Inc. (CDI). Juan wants to buy out Mario’s interest in CDI, so he arranges a stock sale agreement under which CDI will redeem (purchase) all of Mario’s shares for $900,000. This will then ma
> Robert owns some investment land that has a basis of $1,000 and a fair market value of $22,000. He expects that it will continue to appreciate in value. Robert’s uncle, Mike, has a terminal illness and is expected to survive no more than six months. Robe
> Oscar (age 70) and Maggie (age 60) were married and jointly owned a personal residence valued at $3,800,000 when Oscar died in 2017. Oscar also owned stocks valued at $4,700,000; an art collection valued at $1,400,000; a retirement account valued at $900
> You are the trustee for the Steadman Trust. The trust has $50,000 of interest income, all of which it plans to distribute to its beneficiaries in the current year. The trust also has $14,000 in net capital losses for the year that are allocated to corpus
> When Godfrey died in 2017, his assets were valued as follows: The executor sold the stock two months after the decedent’s death for $2,200,000. The bonds were sold seven months after the decedent’s death for $4,630,00
> Your client, Ted, would like your assistance in selecting one of the following assets to give to his 16-year-old daughter. The corporate stock pays only $100 in dividend income each year but has doubled in value since Ted purchased it three years ago. T
> In the current year, Serena sold investment land for $105,000 that she purchased six years ago for $61,000; a diamond engagement ring for $1,800 that her ex-fiancée had given her nine months ago (purchased for $2,500 a week before giving it to her); 2,00
> An S corporation shareholder is currently in the 28 percent tax bracket. His S corporation is going to pass a very large loss through to him that would otherwise offset other income, except for the fact that he lacks sufficient stock basis to absorb the
> Prior to BJ Corporation’s year-end, its sole shareholder comes to you for advice. BJ is an established S corporation that was profitable until two years ago when the economy faltered. Due to distributions and losses passed through in prior years, the sha
> Cynthia needs your advice regarding which form of business entity to choose for her new business. She expects the new business will have losses of approximately $80,000 in each of the first two years but anticipates profits that will grow steadily therea
> Clare and Cora have been making wedding cakes in their homes for several years. The Health Department just learned about this and now requires them to shut down or find a commercial kitchen that can be subject to the proper inspections. Clare and Cora lo
> One of Corbett Corporation’s shareholders, Gene, has severe financial problems due to extensive medical expenses. He has approached the company for a loan, but the other shareholders on the board of directors refuse to approve it. Gene owns 25 percent of
> The Cooper Corporation is trying to do some year-end tax planning due to a large bond issue that is coming due. To meet this debt payment, Cooper already has sold $4,000,000 of business assets at a gain of $2,000,000. It is considering the sale of one of
> The Overseas Corporation has taxable income of $250,000 before either a deduction for foreign taxes paid or the foreign tax credit. It paid foreign taxes of $75,000 on foreign income of $300,000. Assuming the corporation cannot carry the foreign tax cred
> The Barnard Corporation needs additional cash to improve its facilities. It can borrow $2,000,000 from a bank at 9 percent interest for 10 years, with a balloon payment of the entire principal at the end of the 10-year period. It can issue $2,000,000 in
> The Timberlake Corporation has an opportunity to sell its manufacturing facility to Carroll Corporation for $4,500,000. The property has a basis of $2,000,000, and the prospective purchaser is willing to wait up to six months for occupancy to allow Timbe
> The Glades Corporation located a building it would like to have for its new warehouse. The corporation has contacted the owner about making a trade for its existing property. The owner of the desired property is only willing to sell the building for cash
> What are the ownership and use tests that must be met to exclude the maximum gain on the sale of a personal residence? Under what circumstances may the owner of a personal residence exclude gain if the required ownership and use tests are not met?
> William, Wally, and Wilma want to form a corporation. William has cash of $100,000; Wally has property valued at $100,000 with a basis of $80,000; and Wilma has property valued at $50,000 that has a $70,000 basis. Wally doesn’t want to recognize his gain
> Refer to the material in the preceding problem. Timberlake locates suitable property that the owner would sell for $4,800,000 although the property appraises at only $4,250,000. Carroll Corporation is willing to purchase this property for the $4,800,000
> George has a short-term capital loss of $42,000 this year. His brother wants to buy a piece of land that George has owned as an investment for $60,000. The land’s basis is only $20,000. George also knows that the land is appreciating in value every year,
> Natalie expects her ordinary income to exceed the 39.6 percent tax bracket this year. So far this year, she has a $5,000 short-term capital loss. As of June 1, she is holding 1,000 shares of Dritco stock purchased on June 15 of last year for $15,000. The
> Betty is a real estate dealer and has numerous properties for sale, many of which she owns. Her son is finishing his education and plans to go into the consulting business. Betty has committed at least $25,000 to help him out until the business becomes s
> Joy purchased a home in Maine on December 15, 1999 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2012 for $380,000. In 2012 and 2013 she continued to have her primary residence in Maine. On October 1, 2
> Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she plans to replace as part of the expansion. To finance this expansion she will have to sell some o
> Wilma had a number of stock transactions during the year that resulted in an $18,000 capital loss. She has one stock remaining in her portfolio and would realize a $16,000 capital gain if she sold it now. She believes this stock is going to continue to i
> Bing Corporation can buy a new car for business use for $40,000 (including tax, license, and title fees) or it can lease an identical car for $450 per month, paying $2,100 up front for tax, license, and title fees. The corporation normally keeps its cars
> Herald Corporation, a calendar-year taxpayer, purchased and placed the following business assets in service during 2017: Herald Corporation plans to purchase $460,000 of new office furniture. It could wait until January to make the purchase, or it could
> What is the potential advantage to having a substantial investment in stock in a qualified small business corporation rather than an equal investment in other corporate stock not meeting their provisions?
> Roman Corporation (a calendar-year corporation) purchased and placed in service the following assets in 2017: $60,000 of the cost of the warehouse property is for the land. a. Roman Corporation wants to maximize its depreciation deduction. Which asset(
> Arco Corporation acquired some heavy equipment mid-year (in addition to the $2,600,000 in equipment purchased in January of this year). The new equipment is 7-year class property, but Arco expects to use the equipment for 8 years. It could purchase the e
> Cornelia transfers property valued at $500 (basis = $350) to Wayside Corporation in exchange for 50 percent of its stock. Ferdinand transfers property valued at $450 (basis = $260) in exchange for 40 percent of Wayside’s stock and $50 cash. Cheryl transf
> Carol decides to transfer her rental apartment building to a wholly owned corporation to insulate herself from tenant liabilities. The apartment building is valued at $1,250,000 and has a basis of $1,350,000 due to $400,000 of recent improvements made to
> Arleta transfers property valued at $210,000 (basis = $190,000) to BCD Corporation in exchange for 70 percent of its stock. Georgia transfers property valued at $85,000 (basis = $75,000) and performs $5,000 in accounting services in exchange for the othe
> Wilbur transfers property valued at $100,000 (basis = $70,000) to the Debold Corporation in exchange for 100 percent of its stock. What is Wilbur’s realized gain or loss on the transfer and his recognized gain or loss? What is his basis in the stock rece
> Jim and Cindy form JC Corporation, with each receiving 50 percent of the shares issued. Jim transfers land valued at $50,000 with a $40,000 basis for his stock, and Cindy transfers property valued at $45,000 with a basis of $50,000 for her stock. In addi
> Conroy Corporation agrees to sell some of its excess machinery for $190,000 consisting of a $70,000 down payment in year of sale and additional payments of $60,000 in each of the next two years, plus interest. Conroy purchased this machinery several year
> On January 2, year 1, Randy sold a parcel of land held as an investment. Randy’s basis in the land was $8,500. The buyer made a $6,000 down payment on the date of sale and $7,000 payments on January 2 in both year 2 and year 3. In addition, the buyer pai
> Kelly was active in the market, buying and selling stocks for her own account. Below are a series of transactions Kelly initiated during the last quarter of 2017: The XYZ stock sold on 11/01 had been purchased two years earlier for $18 per share. What i
> What is the significance of having stock qualify as Section 1244 stock?
> If the generation-skipping transfer tax did not exist, what type of planning would maximize the preservation of a family’s wealth?
> William bought 1,000 shares of Bevo stock three years ago for $100 per share. This year he has a $20,000 short-term capital gain from the sale of his shares of an initial public offering of GBD Company stock. To offset the gain, William sells his shares
> Marilyn owned 500 shares of Ibis stock that she purchased several years ago for $25,000. This year, she sold 200 of the shares to her brother for $7,000, its fair market value, when she wanted money for some plastic surgery. Determine Marilyn’s realized
> Monroe Corporation’s chief financial officer sold 2,000 shares of TNC stock the corporation was holding as a temporary investment on July 3 at a $4,000 loss. On July 30, the controller of Monroe purchased 1,000 shares of TNC for the corporation at $8 per
> Moore bought 2,000 shares of VBT stock over the Internet on January 2 of year 4 for $50,000. On December 28 of year 3, his broker sold 3,000 shares of VBT for $85,000 that she had been holding in Moore’s account. This stock had been purchased in year 1 f
> Xenon Corporation can sell an auto used for business for $4,000 and purchase a new auto for $20,000. Alternatively, it can trade in the auto on a new one from a different dealer. Xenon will have to pay $17,000 after the $4,000 trade-in allowance for the
> Late in the current year, Bradley Corporation’s factory was destroyed by a tornado. Bradley determined that its unreimbursed loss on their building built ten years ago was $200,000. They also had a $75,000 gain on the sale of a ten-year-old machine (cost
> Performance Industries, Inc. sold three pieces of equipment and a small building on March 1, year 6. Data on these disposals are as follows: a. Determine the amount and character of the gain or loss on each of these assets. b. Determine the sum of eac
> Coronado Corporation owns business realty that was destroyed by fire on March 15, year 1. Its insurance company pays Coronado $325,000 for the property, which has an allocated basis of $275,000. a. What are Coronado’s realized and recognized gains, assu
> Clayton Corporation owns business realty that the county condemns on July 15, year 1. The county pays Clayton $400,000 for the property that has an allocated basis of $235,000. a. What are Clayton’s realized and recognized gains, assuming it does not re
> Danny’s living room furniture and his flat screen television were damaged in a fire in his home in January 2017. In March 2017, his golf cart was damaged in a flood. He was able to establish the following information to determine his lo
> How are net capital losses of individuals treated for tax purposes? How are net capital losses of corporations treated for tax purposes?
