Many years ago James and Sergio purchased property for $450,000. Although they are listed as equal co-owners, Sergio was able to provide only $200,000 of the purchase price. James treated the additional $25,000 of his contribution to the purchase price as a gift to Sergio. Suppose the property is worth $900,000 at Sergio’s death, what amount would be included in Sergio’s estate if the title to the property was tenants in common? What if the title were joint tenancy with right of survivorship?
> Compare and contrast the relative importance of judicial law to state and local and federal tax law.
> Compare and contrast federal/state tax differences and book/federal tax differences.
> Most states have increased the weight of the sales factor for the apportionment of business income. What are some possible reasons?
> Contrast the treatment of government sales and dock sales for the sales apportionment factor.
> Root Beer, Inc. (RBI) is incorporated and headquartered in Seattle, Washington. RBI runs an Internet business, makerootbeer.com, and sells bottling equipment and other supplies for making homemade root beer. It also has an Oregon warehouse from which it
> Compare and contrast the ways a multistate business divides business and non-business income among states.
> Compare and contrast the reasons why book/tax and federal/state adjustments are necessary for interest income.
> Explain the rationale for the factors (functional integration, centralization of management, and economies of scale) that determine whether two or more businesses form a unitary group under the Mobil decision.
> Calculate Anaheim Corporation’s excess net passive income tax in each of the following alternative scenarios. a. Passive investment income, $100,000; expenses associated with passive investment income, $40,000; gross receipts, $120,000; taxable income if
> Eagle Inc., a U.S. corporation intends to create a limitada in Brazil in 2016 to manufacture pitching machines. The company expects the operation to generate losses of US$2,500,000 during its first three years of operations. Eagle would like the losses t
> Explain the difference between separate-return states and unitary-return states.
> States are arguing for economic nexus; provide at least one reason for and one against the validity of economic nexus.
> Describe a situation in which it would be advantageous for a business to establish income tax nexus in a state.
> Climb Higher is a distributor of high-end climbing gear located in Paradise, Washington. Its sales personnel regularly perform the following activities in an effort to maximize sales: • Carry swag (free samples) for distribution to climbing shop employe
> Explain changes in the U.S. economy that have made Public Law 86-272 partially obsolete. Provide an example of a company that Public Law 86-272 works well for and one that it does not work well for.
> Julie wants to create an S corporation called J’s Dance Shoes (JDS). Describe how the items below affect her eligibility for an S election. a. Because Julie wants all her shareholders to have an equal say in the future of JDS, she gives them equal voting
> Do you know what Cloud computing is? Cloud computing is the use of hosted computer facilities through the Internet. Gmail, RIA Checkpoint, and even your iPhone are some applications of cloud computing. a. If HP provides a customized bundle of servers, s
> Happy Hippos (HH) is a manufacturer and retailer of New England crafts headquartered in Camden, Maine. HH provides services has sales, employees, property, and commercial domicile as follows: Happy Hippos sales of goods and services by state are as follo
> Sharon, Inc. is headquartered in State X and owns 100% of Carol, Josey, and Janice Corps, which form a single unitary group. Assume sales operations are within the solicitation bounds of Public Law 86-272. Each of the corporations has operations in the f
> Chandra was the sole shareholder of Pet Emporium that was originally formed as an S corporation. When Pet Emporium terminated its Selection on August 31, 2015, Chandra had a stock basis and an at-risk amount of zero. Chandra also had a suspended loss fro
> Timo is the sole owner of Jazz Inc., an S corporation. On October 31 2016, Timo executed an unsecured demand promissory note of $15,000, and he transferred the note to Jazz (Jazz could require Timo to pay it $15,000 on demand). When Timo transferred the
> Hannah Corporation, a U.S. corporation, owns 100 percent of the stock its two foreign corporations, Red S.A. and Cedar A.G. Red and Cedar derive all of their income from active foreign business operations. Red operates in a low- tax jurisdiction (20 perc
> Wood Corporation was a C corporation in 2015 but elected to be taxed as an S corporation in 2016. At the end of 2015, its earnings and profits were $15,500. The following table reports Wood’s (taxable) income for 2016 (its first year as
> Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corp. in the amount of $5,000. Birch Corp. has
> Assume the same facts as in the previous problem, except that at the beginning of year 1 Jessica loaned Bikes-R-Us $3,000. In year 2, Bikes-R-Us reported ordinary income of $12,000. What amount is Jessica allowed to deduct in year 1? What are her stock a
> Jessica is a one-third owner in Bikes-R-Us, an S corporation that experienced a $45,000 loss this year (year 1). If her stock basis is $10,000 at the beginning of the year, how much of this loss clears the hurdle for deductibility (assume at-risk limitat
> Gary Holt LLP provides tax and legal services regarding tax-exempt bond issues of state and local jurisdictions. Gary typically provides the services from his New York offices. However, for large issuances Gary and his staff travel to the state to comple
> Virginia Corporation is a calendar year corporation. At the beginning of 2016, its election to be taxed as an S corporation became effective. Virginia Corp.’s balance sheet at the end of 2015 reflected the following assets (it did not h
> Rivendell Corporation uses the accrual method of accounting and has the following assets as of the end of 2015. Rivendell converted to an S corporation on January 1, 2016. a. What is Rivendell’s net unrealized built-in gain at the time it converted to a
> David placed $80,000 in trust with income to Steve for his life and the remainder to Lil (or her estate). At the time of the gift, given the prevailing interest rate, Steve’s life estate was valued at $65,000 and the remainder at $15,000. What is the amo
> Jack and Liz live in a community property state and their vacation home is community property. This year they transferred the vacation home to an irrevocable trust that provides their son, Tom, a life estate in the home and the remainder to their daughte
> Sly is a widower and wants to make annual gifts of cash to each of his four children and six grandchildren. How much can Sly transfer to his children this year if he makes the maximum gifts eligible for the annual exclusion? What is the amount of the tot
> This year Colleen transferred $100,000 to an irrevocable trust that pays equal shares of income annually to three cousins (or their estates) for the next eight years. At that time, the trust is terminated and the corpus of the trust reverts to Colleen. D
> Paton Corporation, a U.S. corporation, owns 100% of the stock of Tappan Ltd, a British corporation, and 100 percent of the stock of Monroe N.V., a Dutch corporation. Monroe has post-1986 undistributed earnings of €600 and post-1986 foreign income taxes o
> This year Jim created an irrevocable trust to provide for Ted, his 32-year-old nephew, and Ted’s family. Jim transferred $70,000 to the trust and named a bank as the trustee. The trust was directed to pay income to Ted until he reaches age 35, and at tha
> Raquel transferred $100,000 of stock to a trust, with income to be paid to her nephew for 18 years and the remainder to her nephew’s children (or their estates). Raquel named a bank as independent trustee but retained the power to determine how much inco
> In year 2, Julio and Milania each received distributions of $25,000 from Falcons Corporation. a. What amount of ordinary income and separately stated items are allocated to them for year 2 based on the information above? b. Complete Falcons Form 1120S, S
> Kashi Corporation is the U.S. distributor of fencing (sword fighting) equipment imported from Europe. It is incorporated in Virginia and headquartered in Arlington, Virginia; it ships goods to all 50 states. Kashi’s employees attend regional and national
> Harold and Maude are married and live in a common law state. Neither has made any taxable gifts and Maude owns (holds title) all their property. She dies with a taxable estate of $15 million and leaves it all to Harold. He dies several years later, leavi
> Roberta is considering making annual gifts of $14,000 of stock each to each of her four children. She expects to live another five years and to leave a taxable estate worth approximately $8,000,000. She requests you justify the gifts by estimating her es
> Several years ago Doug invested $21,000 in stock. This year he gave his daughter Tina the stock on a day it was valued at $20,000. She promptly sold it for $19,500. Determine the amount of the taxable gift, if any, and calculate the amount of taxable inc
> Angelina gave a parcel of realty to Julie valued at $210,000 (Angelina purchased the property five years ago for $88,000). Compute the amount of the taxable gift on the transfer, if any. Suppose several years later Julie sold the property for $215,000. W
> Jones is seriously ill and has $6 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Assuming any taxable transfer will be
> Brad and Angelina are a wealthy couple who have three children, Fred, Bridget, and Lisa. Two of the three children, Fred and Bridget, are from Brad’s previous marriages. On Christmas this year Brad gave each of the three children a cash gift of $10,000 a
> Roland had a taxable estate of $5.5 million when he died this year. Calculate the amount of estate tax due (if any) under the following alternatives. a. Roland’s prior taxable gifts consist of a taxable gift of $1 million in 2005. b. Roland’s prior taxab
> Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2016, Chapeau has $2,000 of gross income, $1,200 from U.S. sources and $800 from sourc
> Jimmy owns two parcels of real estate, Tara and Sundance. Tara is worth $240,000 and Sundance is worth $360,000. Jimmy plans to bequeath Tara directly to his wife Lois and leave her a life estate in Sundance. What amount of value will be included in Jimm
> Willie purchased a whole-life insurance policy on his brother, Benny. Under the policy, the insurance company will pay the named beneficiary $100,000 upon the death of the insured, Benny. Willie names Tess the beneficiary, and upon Benny’s death, Tess re
> USCo owns 100 percent of the following corporations: Dutch N.V., Germany A.G., Australia PLC, Japan Corporation, and Brazil S.A. During the year, the following transactions took place. Determine whether the above transactions result in subpart F income t
> Julio and Milania are owners of Falcons Corporation, an S corporation. They each own 50 percent of Falcons Corporation. In year 1, Julio and Milania each received distributions of $15,000 from Falcons Corporation. a. What amount of ordinary income and se
> Hal and Wendy are married, and they own a parcel of realty, Blackacre, as joint tenants with the right of survivorship. Hal owns an additional parcel of realty, Redacre, in his name alone. Suppose Hal should die when Blackacre is worth $800,000 and Redac
> Tom Hruise was an entertainment executive who had a fatal accident on a film set. Tom’s will directed his executor to distribute his cash and stock to his wife, Kaffie, the real estate to his church, The First Church of Methodology, and the remainder of
> In 2010 Casey made a taxable gift of $5 million to both Stephanie and Linda (a total of $10 million in taxable gifts). Calculate the amount of gift tax due this year and Casey’s unused exemption equivalent under the following alternatives. a. This year C
> Red transferred $5,000,000 of cash to State University for a new sports complex. Calculate the amount of the taxable gift.
> Laura transfers $500,000 into trust with the income to be paid annually to her spouse, William, for life (a life estate) and the remainder to Jenny. Calculate the amount of the taxable gifts from the transfers.
> For the holidays, Marty gave a watch worth $25,000 to Emily and jewelry worth $40,000 to Natalie. Has Marty made any taxable gifts this year and, if so, in what amounts? Does it matter if Marty is married to Wendy and they live in a community property st
> Sombrero Corporation, a U.S. corporation, operates through a branch in Espania. Management projects that the company’s pretax income in the next taxable year will be $100,000, $80,000 from U.S. operations and $20,000 from the branch. Espania taxes corpor
> Fred is retired and living on his pension. He has accumulated almost $1 million of property he would like to leave to his children. However, Fred is afraid much of his wealth will be eliminated by the federal estate tax. Explain whether this fear is well
> Compare and contrast the rules determining where domiciliary and non-domiciliary businesses must file state income tax returns.
> Describe the unified credit and the purpose it serves in the gift and estate tax.
> Identify the features common to the gift tax formula and the estate tax formula.
> Under what conditions can an executor or trustee elect to claim a marital deduction for a transfer of a terminable interest to a spouse?
> Assume Jack and Jill, 25 and 75 percent shareholders in UpAHill corporation have tax bases in their shares at the beginning of year 1 of $24,000 and $56,000, respectively. Also assume no distributions were made. Given the income statement above, what are
> An elderly client has a life insurance policy worth $40,000 that upon her death pays $250,000 to her sole grandchild (or his estate). The client retains ownership of the policy. Outline for her the costs and benefits of transferring ownership of the poli
> A client in good health wants to support the college education of her teenage grandchild. The client holds various properties but proposes to make a gift of cash in the amount of the annual exclusion. Explain to the client why a direct gift of cash may n
> List two questions you might pose to a client to find out whether a program of serial gifts would be an advantageous wealth transfer plan.
> Describe how to initiate the construction of a comprehensive and effective wealth plan.
> Explain why an effective wealth transfer plan necessitates cooperation between lawyers, accountants, and investment advisors.
> Gameco, a U.S. corporation, operates gambling machines in the United States and abroad. Gameco conducts its operations in Europe through a Dutch B.V., which is treated as a branch for U.S. tax purposes. Gameco also licenses game machines to an unrelated
> Web Music, located in Gardnerville, Nevada, is a new online music service that allows inexpensive legal music downloads. Web Music prides itself on having the fastest download times in the industry. It achieved this speed by leasing server space from 10
> Identify whether the corporations described below are controlled foreign corporations. a. Shetland PLC, a UK corporation, has two classes of stock outstanding, 75 shares of class AA stock and 25 shares of class A stock. Each class of stock has equal vo
> Assume the following S corporations and gross receipts, passive investment income, and corporate E&P. Will any of these corporations have its Selection terminated due to excessive passive income? If so, in what year? All became S corporations at the
> Tempe Corporation is a calendar-year corporation. At the beginning of 2016, its election to be taxed as an S corporation became effective. Tempe Corp.’s balance sheet at the end of 2015 reflected the following assets (it did not have an
> When an S corporation shareholder has suspended losses due to the tax-basis or at-risk limitation, is he allowed to deduct the losses if the S corporation status is terminated? Why or why not?
> Why would a new partner who pays more for a partnership interest than the selling partner’s outside basis want the partnership to elect a special basis adjustment?
> In general, how do the disproportionate distribution rules ensure that partners recognize their share of partnership ordinary income?
> Discuss the underlying concern to tax policy makers in distributions in which a partner receives more or less than his share of the partnership hot assets.
> SBT Partnership distributes $5,000 cash and a parcel of land with a fair market value of $40,000 and a $25,000 basis to the partnership to Sam (30% partner). What factors must Sam and SBT consider in determining the tax treatment of this distribution?
> How does a partner determine his basis in distributed assets when the partnership distributes other property in addition to money and hot assets?
> Describe how a partner determines his basis in distributed assets in cases in which a partnership distributes only money, inventory, and/or unrealized receivables in a liquidating distribution.
> Compare and contrast the aggregate and entity approaches for a sale of a partnership interest.
> Under what conditions will a partner recognize loss in a liquidating distribution?
> Alabama Corporation, an S corporation, liquidates this year by distributing a parcel of land to its sole shareholder Mark Ingram. The fair market value of the parcel is $50,000 and its tax basis is $30,000. Mark’s basis in his stock is $25,000. a. What
> Grace, James, Helen, and Charles each own equal interests in GJHC Partnership, a calendar year-end, cash-method entity. On January 1 of the current year, James’ basis in his partnership interest is $62,000. For the taxable year, the par
> Juanita is the sole shareholder of Belize Corporation (a calendar-year S corporation). She is considering revoking the S election. It is February 1, year 1. What options does Juanita have for timing the effective date of the S election revocation?
> Last year, Miley decided to terminate the S corporation election of her solely owned corporation on October 17, 2015 (effective immediately), in preparation for taking it public. At the time of the election, the corporation had an accumulated adjustments
> Carolina Corporation, an S corporation, has no corporate E&P from its years as a C corporation. At the end of the year, it distributes a small parcel of land to its sole shareholder Shadiya. The fair market value of the parcel is $70,000 and its tax basi
> Pine Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Connor, who has always operated it as a C corporation. However, at the beginning of this year, Connor made a qualifying Selection for Pine Corp., effective Janua
> At the end of the year, before distributions, Bombay (an S corporation) has an accumulated adjustments account balance of $15,000 and accumulated E&P of $20,000 from a previous year as a C corporation. During the year, Nicolette (a 40 percent shareholder
> Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone’s earnings and profits at the end of year 1 were $10,
> Janna has a tax basis of $15,000 in her Mimikaki stock (Mimikaki has been an S corporation since inception). In 2016, Janna was allocated $20,000 of ordinary income from Mimikaki. What is the amount and character of gain she recognizes from end of the ye
> Maple Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Brady, who immediately elected S corporation status. On December 31 of the current year, Maple distributed $30,000 cash to Brady. What is the amount and charact
> Friends Jackie (0.5 percent owner), Jermaine (1 percent owner), Marlon (2 percent owner), Janet (86 percent owner), and Tito (10.5 percent owner) are shareholders in Jackson 5 Inc. (an S corporation). As employees of the company, they each receive health
> This year, Justin B.’s share of S corporation income includes $4,000 of interest income, $5,000 of dividend income, and $40,000 of net income from the corporation’s professional service business activity. a. Assume that Justin B. materially participates
> Allison, Keesha, and Steven each own equal interests in KAS Partnership, a calendar year-end, cash-method entity. On January 1 of the current year, Steven’s basis in his partnership interest is $27,000. During January and February, the
> Under what conditions will a partner recognize gain in a liquidating distribution?
> Using the facts in problem 62, could Adam and Tom lower their payroll tax exposure if they operated their business as a partnership? Why or why not?
> In what circumstances could a calendar-year C corporation make an election on February 1, year 1, to be taxed as an S corporation in year 1 but not have the election effective until year 2?
> Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation, and each earns a salary of $80,000 fro
> In the past several years, Shakira had loaned money to Shakira Inc. (an S corporation) to help the corporation keep afloat in a downturn. Her stock basis in the S corporation is now zero, and she had deducted $40,000 in losses that reduced her debt basis
