One of your clients is considering electing S status. Texas, Inc., is a six year- old company with two equal shareholders, both of whom paid $30,000 for their stock. Going into 2017, Texas holds a $110,000 NOL carryforward from prior years. Estimated income is $40,000 for 2017 and $25,000 for each of the next three years. Should Texas make an S election for 2017? Why or why not?
> Davis, an officer for a § 501(c)(3) organization, receives benefits that are inappropriate in the context of a charitable entity. The excess benefits are determined to be $35,000. Davis does not pay back the excess benefits to the organization before the
> Helpers, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $250,000 for the taxable year and grass roots expenditures of $0. Exempt purpose expenditures for the taxable year are $1,200,000. Helpers elects to be eligible to make
> Rejoice, Inc., a private foundation, has existed for 10 years. Rejoice held undistributed income of $160,000 at the end of its 2015 tax year. Of this amount, $90,000 was distributed in 2016, and $70,000 was distributed during the first quarter of 2017. T
> Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company’s operations, and he is the only person working at the company tha
> Alice owns 100 percent of Medical Data, a C corporation, and 100 percent of Your Realtors, an S corporation. She worked full-time for Medical Data (i.e., she materially participated in the entity), but Alice did not materially participate in Your Realtor
> If the beginning balance in Swan, Inc.’s OAA is $6,700 and the following transactions occur, what is Swan’s ending OAA balance? Depreciation recapture income………………………………………..$ 21,600 Payroll tax penalty…………………………………………………………….(4,200) Tax-exempt interest
> Tiger, Inc., a calendar year S corporation, is owned equally by four shareholders: Ann, Becky, Chris, and David. Tiger owns investment land that was purchased for $160,000 four years ago. On September 14, when the land is worth $240,000, it is distribute
> Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2017. The company generated a $74,000 NOL in 2016 and another NOL of $43,000 in 2017. Orange recorded no other transactions for the year. At all times i
> Green Corporation’s assets are valued at $920,000 after payment of all corporate debts, except for $134,000 of taxes payable on net gains it recognized on the liquidation. Bruno, an individual and the sole shareholder of Green, has a basis of $280,000 in
> Blue is the owner of all of the shares of an S corporation, and Blue is considering \receiving a salary of $110,000 from the business. She will pay the \7.65% FICA taxes on the salary, and the S corporation will pay the same amount of \FICA tax. If Blue
> Samuel Reese sold 1,000 shares of his stock in Maroon, Inc., an S corporation. He sold the stock for $15,700 after he had owned it for six years. Samuel had paid $141,250 for the stock, which was issued under § 1244. Samuel is married and is the owner of
> In Problem 44, how much of the Whitman loss belongs to Ann and Becky? Becky’s stock basis is $41,300. Facts from Problem 44 At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a
> At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a $120,000 loss for the year (not a leap year). On the 189th day of the year, Ann sells her half of the Whitman stock to her so
> Maple, Inc., is an S corporation with a single shareholder, Bob Maple. Bob believes that his stock basis in the entity is $50,000, but he has lost some of the records to substantiate this amount. Maple reports an ordinary loss for the year of $80,000. Wh
> Assume the same facts as in Problem 40, except that Jeff’s share of corporate taxable income is only $8,000 and there is no cash distribution. However, the corporation repays the $10,000 loan principal to Jeff. Discuss the related Federal income tax effe
> Assume the same facts as in Problem 40, except that there is no cash distribution, but the corporation repays the loan principal to Jeff. Discuss the tax effects. Facts from Problem 40 At the beginning of the year, Ann and Becky own equally all of the s
> Jeff, a 52% owner of an S corporation, has a stock basis of zero at the beginning of the year. Jeff’s basis in a $10,000 loan made to the corporation and evidenced by a corporate note has been reduced to zero by pass-through losses. During the year, his
> Zebra, Inc., a calendar year S corporation, incurred the following items this year. Sammy is a 40% Zebra shareholder throughout the year. Operating income………………………………………………………………..$100,000 Cost of goods sold………………………………………………………………..(40,000) Depreciatio
> Maul, Inc., a calendar year S corporation, incurred the following items. Tax-exempt interest income…………………………………$ 7,000 Sales…………………………………………………………………..140,000 Depreciation recapture income………………………………12,000 Long-term capital gain………………………………………….20,000
> On January 4, 2017, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under § 351. The shareholder’s basis, the fair market value, and the built-in gai
> The profit and loss statement of Kitsch Ltd., an S corporation, shows $100,000 book income. Kitsch is owned equally by four shareholders. From supplemental data, you obtain the following information about items that are included in book income. Selling
> Based upon the following facts about Aqua, Inc., a calendar year S corporation, prepare the entity’s Schedule M-2. AAA, beginning of the year……………………………………………………….$ 9,400 Ordinary income………………………………………………………………………24,600 Tax-exempt income…………………………………………
> Friedman, Inc., an S corporation, holds some highly appreciated land and inventory and some marketable securities that have declined in value. It anticipates a sale of these assets and a complete liquidation of the company over the next two years. Arnold
> Bonnie and Clyde each own one-third of a fast-food restaurant, and their 13-year-old daughter owns all of the other shares. Both parents work full-time in the restaurant, but the daughter works infrequently. Neither Bonnie nor Clyde receives a salary dur
> Flint, an S corporation with substantial AEP, reports operating revenues of $410,000, taxable interest income of $390,000, operating expenses of $260,000, and deductions attributable to the interest of $150,000. Calculate any passive investment income pe
> Whindy Corporation, an S corporation, reports a recognized built-in gain of $80,000 and a recognized built-in loss of $10,000 this year. Whindy holds an $8,000 unexpired NOL carryforward from a C corporation year. Whindy’s ordinary income for the year is
> A calendar year S corporation reports an ordinary loss of $80,000 and a capital loss of $20,000. Mei Freiberg owns 30% of the corporate stock and has a $24,000 basis in her stock. Determine the amounts of the ordinary loss and capital loss, if any, that
> Assume the same facts as in Problem 38, except that the cash distribution to Lizzie amounts to $40,000. Determine Lizzie’s stock basis at the end of the year and the treatment of her cash distribution. Facts from Problem 38, At the beginning of the tax
> At the beginning of the tax year, Lizzie holds a $10,000 stock basis as the sole shareholder of Spike, Inc., an S corporation. During the year, Spike reports the following. Determine Lizzie’s stock basis at the end of the year and the treatment of her ca
> Assume the same facts as in Problem 36, except that the two shareholders consent to an AAA bypass election. Facts from problem 36 Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock.
> Osprey Corporation stock is owned by Pedro and Pittro, who are unrelated. Pedro and Pittro each own 50% of the stock in the corporation. Osprey has the following assets (none of which were acquired in a § 351 or contribution to capital transa
> Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Both shareholders record a $400,000 stock basis as of January 1. At the beginning of the tax year, Money reports balances in AAA of
> Cougar, Inc., is a calendar year S corporation. Cougar’s Form 1120S shows non-separately stated ordinary income of $80,000 for the year. Johnny owns 40% of the Cougar stock throughout the year. The following information is obtained from the corporate rec
> Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2017. During 2018, Lonergan, Inc., distributes $140,000 to its shareholders, while sustaining an ordinary loss of $120,
> Spence, Inc., a calendar year S corporation, generates an ordinary loss of $110,000 and makes a distribution of $140,000 to its sole shareholder, Storm Nelson. Nelson’s stock basis and AAA at the beginning of the year are $200,000. Write a memo to your s
> During the year, Wheel, a calendar year S corporation in Stillwater, Oklahoma, generates the following AMT items: a positive adjustment of $66,000 for mining exploration costs, an excess depletion tax preference of $96,000, and a positive certified pollu
> McLin, Inc., is a calendar year S corporation. Its AAA balance is zero. a. McLin holds $90,000 of AEP. Tobias, the sole shareholder, has an adjusted basis of $80,000 in his stock. Determine the tax aspects if a $90,000 salary is paid to Tobias. b. Same a
> On January 1, Kinney, Inc., an S corporation, reports $4,000 of accumulated E & P and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and Frank, each of whom owns 500 shares of Kinney’s stock. Kinney’s nonseparately stated ordinary income
> Mary is a shareholder in CarrollCo, a calendar year S corporation. At the beginning of the year, her stock basis is $10,000, her share of the AAA is $2,000, and her share of corporate AEP is $6,000. At the end of the year, Mary receives from CarrollCo a
> Which of these taxes may be incurred by an S corporation? a. Alternative minimum tax. b. Tax on certain built-in gains. c. Property tax assessed by the county.
> Joey lives in North Carolina, a common law state. He is a shareholder in an S corporation. If he marries a nonresident alien, will the S election terminate? Would your answer change if he lives in Louisiana? Explain.
> Pursuant to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $650,000, fair market value of $880,000). a. Determine the gain or loss recognized by Carrot on the distribution if no liab
> Which of the following can be shareholders of an S corporation? a. Partnership. b. Limited liability partnership. c. Corporation. d. One-member limited liability company
> One shareholder of an S corporation takes a short-term unwritten cash advance of $9,100 during the tax year. Would this arrangement create a second class of stock? Explain.
> Which of the following are requirements to be an S corporation? a. Limited to an absolute maximum of 100 shareholders. b. Has no resident alien shareholders. c. Has only one class of stock. d. May have no straight debt. e. Cannot have any earnings and pr
> Using the categories in the following legend, classify each transaction as a plus (+) or minus (─) on Schedule M–2 of Form 1120S. An answer might look like one of these: +AAA or ─ OAA. a. Receipt of
> Caleb Samford calls you and says that his two-person S corporation was involuntarily terminated in February 2016. He asks you if they can make a new S election now, in November 2017. Draft a memo for your firm’s tax research file, outlining what you told
> On March 2, 2017, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident alien) on January 18, 2017. Identify any potential problems
> Bob Roman, the major owner of an S corporation, approaches you for some tax planning help. He would like to exchange some real estate in a like-kind transaction under § 1031 for real estate that may have some environmental liabilities. Prepare a letter t
> Sheila Jackson is a 50% shareholder in Washington, Inc., an S corporation. This year, Jackson’s share of the Washington loss is $100,000. Jackson reports income from several other sources. Identify at least four tax issues related to the effects of the S
> For each of the following independent statements, indicate whether the transaction will increase (+), decrease (─), or have no effect (NE) on the basis of a shareholder’s stock in an S corporation. a. Expenses related to tax-exempt income. b. Short-term
> Sunset Corporation, with E & P of $400,000, makes a cash distribution of $120,000 to a shareholder. The shareholder’s basis in the Sunset stock is $50,000. a. Determine the tax consequences to the shareholder if the distribution is a nonqualified stock r
> Scott Tierney owns 21% of an S corporation. He is confused with respect to the amounts of the corporate AAA and his stock basis. Write a memo to Scott identifying the key differences between AAA and an S shareholder’s stock basis.
> Collette’s S corporation holds a small amount of accumulated earnings and profits (AEP), requiring the use of a more complex set of distribution rules. Collette’s accountant tells her that this AEP forces the maintenance of the AAA figure each year. Disc
> Greiner, Inc., a calendar year S corporation, holds no AEP. During the year, Chad, an individual Greiner shareholder, receives a cash distribution of $30,000 from the entity. Chad’s basis in his stock is $25,000. Compute Chad’s ordinary income and capita
> Noelle, the owner of all of the shares of ClockCo, an S corporation, transfers her stock to Grayson on April 1. ClockCo reports a $70,000 NOL for the entire tax year, but $10,000 of the loss occurs during January–March. Without a short-year election, how
> Matulis, Inc., a calendar year C corporation, owns a single asset with a basis of $325,000 and a fair market value of $800,000. Matulis holds a positive E & P balance. It elects S corporation status for 2018 and then sells the asset. Compute the corporat
> Kaiwan, Inc., a calendar year S corporation, is partly owned by Sharrod, whose beginning stock basis is $32,000. During the year, Sharrod’s share of a Kaiwan long-term capital gain (LTCG) is $5,000, and his share of an ordinary loss is $18,000. Sharrod t
> Jonas is a 60% owner of Ard, an S corporation. At the beginning of the year, his stock basis is zero. Jonas’s basis in a $20,000 loan made to Ard and evidenced by Ard’s note has been reduced to $0 by prior losses. During the year, Jonas’s net share of Ar
> Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $45,000 ten years ago and is currently worth $120,000. a. As a result of the distribution, wha
> Holbrook, a calendar year S corporation, distributes $15,000 cash to its only shareholder, Cody, on December 31. Cody’s basis in his stock is $20,000, Holbrook’s AAA balance is $8,000, and Holbrook holds $2,500 AEP bef
> Dion, a shareholder, owned 20% of MeadowBrook’s stock for 292 days and 25% for the remaining 73 days in the year. Using the per-day allocation method, compute Dion’s share of the following S corporation items. Sch
> How is the four-column template in Concept Summary 20.3 used to determine a shareholder’s basis in the stock received in a corporate restructuring?
> TyroneCo, an S corporation with a positive E & P balance, reports gross receipts for the year totaling $400,000 (of which $200,000 is PII). Expenditures directly connected to the production of the PII total $80,000. Compute Tyrone’s PII tax.
> Fredstone Consolidated, Inc., and Gradison Enterprises, Inc., are both real estate developers. Each entity owns a 50% general partner interest in Realty Partners, GP, a general partnership. Fredstone and Gradison each contributed $15,000 to form the part
> Andy has operated his moving company, MoveOn, as a sole proprietorship for several years. In the current tax year, MoveOn placed into service $480,000 of property qualifying for immediate expensing under § 179. Andy also joined with another local mover t
> Barney, an individual, and Aldrin, Inc., a domestic C corporation, have decided to form BA LLC. The new LLC will produce a product that Barney recently developed and patented. Barney and Aldrin, Inc., will each own a 50% capital and profits interest in t
> Let’s look at both the facts and the spreadsheet from Problem 46. Consider the results if the partnership’s revenues were $100,000 instead of $150,000. a. What happens if you update the revenues line on your spreadsheet? Are your new amounts correct for
> The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kayla’s basis is $20,000 and Lisa’s basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and
> Assume the same facts as in Problems 42 to 44. Prepare Amy’s Schedule K–1 as if you were the preparer of AM Products LLC’s tax return. Provide all information that Amy needs to the extent you can. For Parts I and II (Items A to F), omit any missing infor
> Assume the same facts as in Problem 42. Prepare Amy’s tax-basis capital account roll forward from the beginning to the end of the tax year. How does her capital account differ from her basis as calculated in Problem 42? Facts from Problem 42 Amy and Mit
> Assume the same facts as in Problem 42. What income, gains, losses, and deductions does Amy report on her income tax return? Based on the information provided, what other calculations is she required to make? Facts from Problem 42 Amy and Mitchell share
> Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At the beginning of the current year, Amy’s capital account
> Explain why a private letter ruling from the IRS is like an insurance policy for a corporate reorganization.
> Under what circumstances are losses disallowed to a corporation in liquidation?
> Polly and her husband, Leo, file a joint return and expect to report 2017 AGI of $75,000. Polly’s employer offers a child and dependent care reimbursement plan that allows up to $5,000 of qualifying expenses to be reimbursed in exchange for a $5,000 redu
> Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red executed a document under which Clyde’s stock in Red would
> Nadia donates $4,000 to Eastern University’s athletic department. The payment guarantees that Nadia will have preferred seating near the 50-yard line. a. Assume that Nadia subsequently buys four $100 game tickets. How much can she deduct as a charitable
> Siva Nathaniel owns various plots of land in Fulton County, Georgia. He acquired the land at various times during the last 20 years. About every fourth year, Siva subdivides into lots one of the properties he owns. He then has water, sewer, natural gas,
> Search for the phrase “mortgage and real estate fraud” on the IRS’s website (www.irs.gov). Read the articles you find, and explain why this type of fraud is often unearthed by the IRS.
> Perform a Google search to find information about capital gains tax rates worldwide (and across U.S. states). Try searching for “capital gains rate by country (state).” What jurisdiction has the highest capital gains tax rate? What U.S. states have high
> Your client, Alternate Fuel, Inc. (a regular corporation), owns three sandwich shops in the Philadelphia area. In 2014, the year Alternate Fuel incorporated, it acquired land on the outskirts of Philadelphia with the hope of someday farming the land to c
> Puce is a corporation that buys and sells financial assets. It purchases notes receivable from manufacturers that need cash immediately and cannot wait to collect the notes. Puce pays about 88% of the face value of the receivables and then collects them.
> Gray, Inc., a C corporation, has taxable income from operations of $1,452,000 for 2017. It also has a net long-term capital loss of $355,000 from the sale of a subsidiary’s stock. The year 2017 is the first year in the last 10 years that Gray has not had
> For 2017, Ashley has gross income of $38,350 and a $5,000 long-term capital loss. She claims the standard deduction. Ashley is 35 years old and unmarried with two dependent children. How much of Ashley’s $5,000 capital loss carries over to 2018?
> An individual taxpayer sells some used assets at a garage sale. Why are none of the proceeds taxable in most situations?
> What are the maximum postponed gain or loss and the basis for the replacement property for the following involuntary conversions? Туре of Conversion Amount Adjusted Amount Property Realized Basis Reinvested Drugstore (business) Casualty $160,000 $13
> Consuela was a tenant in a campus apartment. She is a student at State University. Her lease began on August 1, 2017, and was due to expire on July 31, 2018. However, her landlord sold the building, and the new owner wanted to demolish it to build a reta
> How does the earned income credit fit into the Federal government’s plan to fight poverty?
> Carla was the owner of vacant land that she was holding for investment. She paid $2 million for the land in 2015. Raymond was an investor in vacant land. He thought Carla’s land might be the site of an exit ramp from a new freeway. Raymond gave Carla $83
> For 2017, Wilma has properly determined taxable income of $36,000, including $3,000 of unrecaptured § 1250 gain and $8,200 of 0%/15%/20% gain. Wilma qualifies for head-of-household filing status. Compute Wilma’s tax liability and the tax savings from the
> Malcolm owns 60% and Buddy owns 40% of Magpie Corporation. On July 1, 2017, each lends the corporation $30,000 at an annual interest rate of 5%. Malcolm and Buddy are not related. Both shareholders use the cash method of accounting, and Magpie Corporatio
> Jane and Blair are married taxpayers filing jointly and have 2017 taxable income of $97,000. The taxable income includes $5,000 of gain from a capital asset held five years, $2,100 of gain from a capital asset held seven months, and $13,000 of gain from
> Helena has the following long-term capital gains and losses for 2017: $65,000 28% gain, $53,000 28% loss, $28,000 25% gain, and $24,000 0%/15%/20% loss. She also has a $33,000 short-term loss and a $65,000 short-term gain. What is Helena’s AGI from these
> Paul has the following long-term capital gains and losses for 2017: $62,000 28% gain, $21,000 28% loss, $18,000 25% gain, and $64,000 0%/15%/20% gain. He also has a $53,000 short-term loss and a $5,000 short-term gain. What is Paul’s AGI from these trans
> Phil and Susan Hammond are married taxpayers filing a joint return. The couple have two dependent children. Susan has wages of $34,000 in 2016. Phil does not work due to a disability, but he is a buyer and seller of stocks. He generally buys and holds fo
> Sheila inherited 300 shares of stock, 100 shares of Magenta and 200 shares of Purple. She has a stockbroker sell the shares for her, uses the proceeds for personal expenses, and thinks nothing further about the transactions. What issues does she face whe
> Bridgette is known as the “doll lady.” She started collecting dolls as a child, always received one or more dolls as gifts on her birthday, never sold any dolls, and eventually owned 600 dolls. She is retiring and moving to a small apartment and has deci
> Cabel’s warehouse, which has an adjusted basis of $380,000 and a fair market value of $490,000, is condemned by an agency of the Federal government to make way for a highway interchange. The initial condemnation offer is $425,000. After substantial negot
> In 2017, Bertha Jarow had a $28,000 loss from the sale of a personal residence. She also purchased a patent on a rubber bonding process from an individual inventor for $7,000 (and resold it in two months for $18,000). The patent had not yet been reduced
