P and S Corporations have filed consolidated tax returns for several years. In the current year (Year 1), P began selling inventory items to S. P and S use the first-in, first-out (FIFO) inventory method. P’s profits on its Year 1 inventory sales to S are $75,000. S’s sales to third parties during Year 1 include inventory items that P sells to S during Year 1 for a $40,000 profit; S sells these inventory items to third parties for a $25,000 profit. S’s inventory at the end of Year 1 includes items that P sells to S for a $35,000 profit. S is deemed to sell these to third parties during Year 2 due to its use of the FIFO method and realizes a $22,000 profit on their sale. P’s profits on its Year 2 inventory sales to S are $240,000. S’s sales to third parties during Year 2 include items that P sells to S during Year 2 for a $160,000 profit. S sells these inventory items to third parties for a $105,000 profit. S’s inventory at the end of Year 2 includes items that P sells to S for an $80,000 profit. The group’s consolidated taxable income (before taking into account any adjustments for profits on intercompany inventory sales) is $100,000 in Year 1 and $367,000 in Year 2. For simplicity, assume P and S have no other transactions in these two years. Also, ignore the U.S. production activities deduction. What is the group’s consolidated taxable income for Years 1 and 2?
> For each of the following independent situations, determine which partnership(s) (if any) terminate and which partnership(s) (if any) continue. a. The KLMN Partnership is created when the KL Partnership merges with the MN Partnership. The ownership of t
> Tyra has a zero basis in her partnership interest and a share in partnership liabilities, which are quite large. Explain how these facts will affect the taxation of her departure from the partnership using the following methods of terminating her interes
> Wendy, Xenia, and Yancy own 40%, 8%, and 52%, respectively, of the WXY Partnership. For each of the following independent situations occurring in the current year, determine whether the WXY Partnership terminates and, if so, the date on which the termina
> Josh holds a general partnership interest in the JLK Partnership having a $40,000 basis and a $60,000 FMV. The JLK Partnership is a limited partnership that engages in real estate activities. Diana has an interest in the CDE Partnership having a $20,000
> Amy, a one­third partner, retires from the AJS Partnership on January 1 of the current year. Her basis in her partnership interest is $120,000 including her share of liabilities. Amy receives $160,000 in cash from the partnership for her inter
> John has a 60% capital and profits interest in the JAS Partnership with a basis of $333,600, which includes his share of liabilities, when he decides to retire. Andrew and Stephen want to continue the partnership’s business. On the date
> Bruce died on June 1 of the current year. On the date of his death, he held a one­third interest in the ABC Partnership, which had a $100,000 basis including his share of liabilities. Under the partnership agreement, Bruce’s
> When Jerry died on April 16 of the current year, he owned a 40% interest in the JM Partnership, and Michael owns the remaining 60% interest. All his assets are held in his estate for a two­year period while the estate is being settled. Jerry&a
> Kim retires from the KLM Partnership on January 1 of the current year. At that time, her basis in the partnership is $75,000, which includes her share of liabilities. The partnership reports the following balance sheet: Explain the tax consequences (i.e
> Brian owns 40% of the ABC Partnership before his retirement on April 15 of the current year. On that date, his basis in the partnership interest is $40,000 including his share of liabilities. The partnership’s balance sheet on that date
> Suzanne retires from the BRS Partnership when the basis of her one third interest is $105,000, which includes her share of liabilities. At the time of her retirement, the partnership had the following assets: The partnership has $60,000 of liabilities w
> Alice, Bob, and Charles are one­third partners in the ABC Partnership. The partners originally formed the partnership with cash contributions, so no partner has precontribution gains or losses. Prior to Alice’s sale of her pa
> Can a partner recognize both a gain and a loss on the sale of a partnership interest? If so, under what conditions?
> Clay owned 60% of the CAP Partnership and sold one-half of his interest (30%) to Steve for $75,000 cash. Before the sale, Clay’s basis in his entire partnership interest was $168,000 including his $30,000 share of partnership liabilitie
> Pat, Kelly, and Yvette are equal partners in the PKY Partnership before Kelly sells her partnership interest. On January 1 of the current year, Kelly’s basis in her partnership interest, including her share of liabilities, was $35,000.
> The LQD Partnership distributes the following property to Larry in a distribution that liquidates Larry’s interest in the partnership. Assume that no Sec. 754 election is in effect. Larry’s basis in his partnership int
> The AB Partnership pays its only liability (a $100,000 mortgage) on April 1 of the current year and terminates that same day. Alison and Bob were equal partners in the partnership but have partnership bases immediately preceding these transactions of $11
> Marinda is a one­third partner in the MWH Partnership before she receives $100,000 cash as a liquidating distribution. Immediately before Marinda receives the distribution, the partnership has the following assets: At the time of the distribu
> Assume the same four independent distributions as in Problem C:10­25. Fill in the blanks in that problem assuming the only change in the facts is that the distributions are now liquidating distributions instead of nonliquidating distributions.
> The CL Partnership has two partners, Cleo and Leo. Each partner’s basis in his or her partnership interest is $10,000 before any distribution. The partnership distributes $12,000 cash to Cleo and $8,000 cash to Leo. a. Assuming a current distribution, d
> The PQRS Partnership owns the following assets on December 30 of the current year: The partnership has no liabilities, and each partner’s basis in his or her partnership interest is $25,000. On December 30 of the current year, Paula re
> The JKLM Partnership owns the following assets on October 1 of the current year: a. Which partnership items are unrealized receivables? b. Is the partnership’s inventory substantially appreciated? c. Assume the JKLM Partnership has n
> The KLM Partnership owns the following assets on March 1 of the current year: a. Which partnership items are unrealized receivables? b. Is the partnership’s inventory substantially appreciated? c . Assume the KLM Partnership has no l
> What conditions are required for a partner to recognize a loss upon receipt of a distribution from a partnership?
> Happy Times Film Distributions is an electing large partnership. During the current year, the partnership has the following income, loss, and deduction items: Ordinary income……………………………………..$700,000 Passive income………………………………………..3,000,000 Sec. 1231 gai
> Anne decides to leave the ABC Partnership after owning the interest for many years. She owns a 52% capital, profits, and loss interest in the general partnership (which is not a service partnership). Anne’s basis in her partnership inte
> Refer to the facts in Comprehensive Problem C:654. Now assume the entity is a partnership named Lifecycle Partnership. Additional facts are as follows: • Except for precontribution gains and losses, the partners agree to share profits and losses in a
> P Corporation acquires all of S Corporation’s stock at the beginning of the current year in a transaction that qualifies as a Sec. 382 ownership change. P and S elect to file a consolidated tax return for the current year. At the time of the acquisition,
> P and S Corporations comprise an affiliated group that files separate tax returns. P and S had no intercompany inventory sales before the current year (Year 1). P and S use the first-in, first-out (FIFO) inventory method. During Year 1, S sells 40,000 wi
> P Corporation owns 100% of S Corporation’s stock, and S owns 100% of T Corporation’s stock. The three corporations have filed consolidated tax returns for several years. On January 1 of the current year, P’s basis for its S stock is $5 million, and S’s b
> Mark Green and his brother Michael purchased land in Orlando, Florida many years ago. At that time, they began their investing as Green Brothers Partnership with capital they obtained from placing second mortgages on their homes. Their investments have f
> P Corporation owns 100% of S Corporation’s stock, and they have filed consolidated tax returns for several years. P also has owned 49% of T Corporation’s stock for 10 years. On December 31 of the current year (Year 1), P purchases the other 51% of T’s st
> Bart, P’s sole shareholder, creates P on January 1 of Year 1. P purchases all of S1’s and S2’s stock on September 1 of Year 1, after both corporations are in operation for about six months. P, S1, and
> P Corporation acquires all of S Corporation’s stock at the close of business on December 31 of Year 1. The corporations, which file on the calendar year, begin filing a consolidated tax return for Year 2. The corporations report the fol
> Explain the conditions under which Sec. 751 has an impact on nonliquidating (current) distributions.
> P Corporation owns all the stock of S1 and S2 Corporations, and the group has filed consolidated tax returns on a calendar year basis for several years. In the current year (Year 1), S2 sells to S1 for $90,000 land S2 had purchased for $75,000. On Decemb
> P Corporation acquires all of S Corporation’s stock on January 1 of Year 2. In Year 1, the corporations were unrelated entities that filed separate returns. P and S report the following results: Ignore the Sec. 382 loss limitation that
> P Corporation owns all the stock of S Corporation, and P and S file a consolidated tax return. On January 1 of Year 2, P creates T Corporation and acquires all of its stock. P, S, and T report the following results for Years 1 through 3 (before any NOL d
> P Corporation owns all the stock of S1 and S2 Corporations. The corporations have filed consolidated tax returns since their creation in Year 1. At the close of business on July 10 of Year 3, P sells all of its S2 stock. The group reports the following r
> P and S Corporations form in Year 1, with S as P’s wholly-owned subsidiary. The corporations immediately elect to file consolidated tax returns. The group reports the following results: The group does not elect to forego any NOL carryb
> Peoria and Salem Corporations have filed consolidated tax returns for several years. For the current year, consolidated adjusted current earnings are $750,000. Consolidated preadjustment alternative minimum taxable income is $400,000. Consolidated taxabl
> Dallas and Houston Corporations comprise an affiliated group that formed at the beginning of the current year. The following items pertain to Dallas and Houston for the current year: Determine each corporation’s AMT liability if they f
> Miami and Tampa Corporations comprise a parent-subsidiary controlled group. The corporations also comprise an affiliated group that has filed separate tax returns prior to the current year. In each case for the current year, determine each corporation’s
> P, S, and T Corporations have filed consolidated tax returns for several years. P, S, and T report taxable incomes or losses (without regard to any dividends received and dividends-received deductions) of $200,000, $(70,000), and $175,000, respectively,
> Alpha and Beta Corporations comprise an affiliated group that has filed separate tax returns prior to the current year. The corporations report the following amounts for the current year: Alpha’s long-term capital gains include a $4,40
> List five advantages and five disadvantages of making an S election. Briefly explain each item.
> Mobile, Newark, and Omaha Corporations comprise an affiliated group that has filed separate tax returns prior to the current year. The corporations report the following amounts for the current year: The corporations have no intercompany transactions, no
> Topeka and Wichita Corporations have filed consolidated tax returns for several years. Topeka and Wichita report current year taxable incomes (without regard to any dividend income received, charitable contribution deduction, or dividends-received deduct
> P and S Corporations have filed consolidated tax returns for several years. The group had no intercompany inventory sales before the current year (Year 1). P and S use the first-in, first-out (FIFO) inventory method. During Year 1, S sells 50,000 widgets
> S and B corporations are members of an affiliated group that has filed consolidated tax returns for several years. S drills a water well for B in Year 1 and charges B $5,000 for the service. S incurs $4,400 of expenses when drilling the well. B capitaliz
> P and S Corporations have filed consolidated tax returns on a calendar year basis for several years. Both corporations use the accrual method of accounting. On January 1 of the current year, S begins renting a warehouse to P for $10,000 per month. P pays
> P and S Corporations have filed consolidated tax returns on a calendar year basis for several years. Both corporations use the accrual method of accounting. On August 1 of the current year (Year 1), P loans S $250,000 on a one-year note. P charges intere
> P Corporation owns all of S Corporation’s stock. Both corporations use the accrual method of accounting, and they file a consolidated tax return. S provides cleaning services to P. In so doing, S charges P $6,000 for the services and incurs $5,000 of exp
> P owns all the stock of S1 and S2 Corporations. The corporations have filed consolidated tax returns for several years. In the current year (Year 1), S1 sells land to P for $100,000. S1 purchased the land several years earlier for $35,000. P sells the la
> P and S Corporations have filed consolidated tax returns for several years. In Year 1, P purchased land as an investment for $20,000. In Year 3, P sold the land to S for $60,000. S used the land for four years as additional parking space for its employee
> The AB Partnership purchases plastic components and assembles children’s toys. The assembly operation requires a number of special machines that are housed in a building the partnership owns. The partnership has depreciated all its property under MACRS.
> P Corporation owns all the stock of S1 and S2 Corporations, and the three corporations have filed consolidated tax returns on a calendar year basis for several years. P owns 2,400 shares of publicly traded stock it purchased several years ago for $30 per
> P Corporation owns all the stock of S and B Corporations. The three corporations have filed consolidated tax returns on a calendar year basis for several years. S owns property it had purchased for $40,000 several years ago. On August 1 of Year 1, S sell
> P, S1, and S2 Corporations have filed consolidated tax returns for several years. In the current year (Year 1), S1 sells land to S2 for $275,000. S1 purchased the land for $120,000 several years ago and has held it for possible expansion. S2 constructs a
> P Corporation acquires all the stock of S Corporation on October 15 of the current year, which is the 288th day of the year (and not a leap year). Neither corporation is affiliated with another corporation prior to the acquisition. P and S use the accrua
> P Corporation uses the calendar year as its tax year and the accrual method as its overall accounting method. S Corporation uses a fiscal year ending June 30 as its tax year and the cash method as its overall accounting method. On July 31, 2018, P acquir
> P Corporation owns all the stock of S1 and S2 Corporations. The corporations have filed calendar year, consolidated tax returns for several years. On September 15 of the current year, P sells all of S1’s stock to Michelle, an unrelated individual. What e
> Assume the same facts as in Problem C:8-32. What tax returns must the corporations file for the current year? From problem 32: P Corporation owns all of S Corporation’s stock. P and S have filed consolidated tax returns for several years. Determine wheth
> P Corporation owns all of S Corporation’s stock. P and S have filed consolidated tax returns for several years. Determine whether the affiliated group terminates in each of the following circumstances. Assume that all corporations use the calendar year a
> Pierre Corporation’s management is negotiating with Salem Corporation’s management to purchase some of Salem’s stock. Salem’s outstanding shares are as follows: Pierreâ€&
> In each of the following cases, determine the corporations that comprise an affiliated group. All corporations are includible corporations and have one class of stock unless otherwise indicated. a. P Corporation owns all the stock of S and T Corporations
> Cindy has a $4,000 basis in her partnership interest before receiving a nonliquidating (current) distribution of property having a $4,500 basis and a $6,000 FMV from the CDE Partnership. Cindy has a choice of receiving either inventory or a capital asset
> In each of the following cases, determine the corporations that comprise an affiliated group. All corporations are includible corporations and have one class of stock. a. B Corporation owns 100% of C Corporation’s stock and 90% of D Corporation’s stock.
> Bonnie, a widow, irrevocably transfers $1 million of property to a trust and names a bank as trustee. For as long as Bonnie’s daughter Carol is alive, Carol is to receive all the trust income annually. Upon Carol’s death, the property is to be distribute
> On September 1 of the current year, Mario irrevocably transfers a $100,000 whole life insurance policy on his life to Mario, Jr. as owner. On September 1, the policy’s interpolated terminal reserve is $30,000. Mario paid the most recent annual premium ($
> In the current year, Kent gives $42,000 cash to each of his eight grandchildren. His wife makes no gifts during the current year. a. What are Kent’s taxable gifts, assuming Kent and his wife do not elect gift splitting? b. How would your answer to Part
> Explain to a client the tax policy reason Congress allowed estates to make installment payments of the portion of the estate taxes attributable to closely held business interests.
> When is the S corporation’s tax return due? What extensions are available for filing the return?
> Andrew and Beth are equal partners in the AB Partnership. On December 30 of the current year, the AB Partnership agrees to liquidate Andrew’s partnership interest for a cash payment on December 30 of each of the next five years. What tax issues should An
> Determine the accuracy of the following statement: The gross estate includes a general power of appointment possessed by the decedent only if the decedent exercised the power.
> Why do some donors consider the qualified terminable interest property (QTIP) transfer an especially attractive arrangement for making gifts to their spouses?
> Explain to an executor an advantage and a disadvantage of electing the alternate valuation date.
> The ABC Partnership made the following current distributions in the current year. The dollar amounts listed are the amounts before considering any implications of the distribution. The land Alonzo received had been contributed by Beth two years ago when
> In what circumstances do gifts fail to qualify for the annual exclusion?
> What is the purpose of the gift tax annual exclusion?
> Assume that the properties included in Alex’s gross estate have appreciated during the six-month period immediately after his death. May Alex’s executor elect the alternate valuation date and thereby achieve a larger step-up in basis? Explain.
> Antonio would like to make a gift of a life insurance policy on his life. Explain to him what action he must take to make a completed gift.
> Does the exemption from the gift tax for direct payment of tuition encompass payments of non- relatives’ tuition? Explain.
> Which of the following classifications make a shareholder ineligible to own stock in an S corporation? a. U.S. citizen b. Domestic corporation c. Partnership where all the partners are U.S. citizens d. Estate of a deceased U.S. citizen e. Grantor tru
> Which of the following items are considered to be inventory for purposes of Sec. 751? a. Supplies b. Inventory c. Notes receivable d. Land held for investment purposes e. Lots held for resale
> Under what circumstances must the amount of the unified credit usually available be reduced (by a maximum amount of $6,000) even though the donor has never claimed any unified credit?
> Determine whether the following statement is true or false: Every donor who makes a taxable gift incurs a gift tax liability. Explain your answer.
> What was the Congressional purpose for enacting the gift-splitting provisions?
> Andrew contributed investment land having an $18,000 basis and a $22,000 FMV along with $4,000 in money to the ABC Partnership when it was formed. Two years later, the partnership distributed the investment land Andrew had contributed to Bob, another par
> Describe two ways in which the transfer tax (estate and gift tax) system is a unified system.
> Gaylord Gunnison (GG) died January 13, 2017, and his gross estate consisted of three properties—cash, land, and stock in a public company. The amount of cash on the date of his death was $2.9 million, which went into the estate. On January 13, 2017, the
> Matt Patterson died in early 2017 with a $4.5 million gross estate and no deductions other than a potential marital deduction. He bequeathed all his property to his spouse, Nancy, with the provision that, if Nancy predeceases him, the couple’s two adult
> Steve Silver, a new client, owns stock in HyTeche, Inc., which recently had an initial pub lic offering. In early 2017, his stock is valued at $8 million. His only other asset is $9 million of cash. Unfortunately, he has a terminal illness and has a life
> Arthur Zolnick died at age 84 on June 7, 2016. In March 2008, he transferred $4 million of stock to a charitable remainder annuity trust (CRAT) from which he named himself to receive $200,000 per year for life. He designated a charitable organization to
> Your firm has prepared the estate tax return (Form 706) for the Estate of Belinda Baker, a widow who died January 13, 2017. Besides substantial amounts of cash, mostly in certificates of deposit, she owned ABC stocks valued at $3.2 million, TUV stocks va
> Soon you will be meeting with a client who is considering moving to one of several other states and who currently does not have a will. You want to do some research regarding how property often passes if the decedent dies intestate (without a will). The
> Philip Seymour Hoffman died in February 2014, survived by three children (Cooper, Tallulah, and Willa) and their mother Marianne O’Donnell. His estate was estimated to have a net value of $35 million. Perform a Google search using the words “Philip Seymo
> George Tanner died October 2, 2016, survived by his son Thomas and his daughter Gigi Tanner Stewart and her children, Sam and Cindy. George was the sole stockholder of Tanner, Inc., a C corporation. Gigi served as president of Tanner from its inception u
> Sam and Taylor, residents of New Jersey, entered into a domestic partnership in New Jersey in October 2004. However, they never obtained a marriage license. Sam died in March 2017, survived by Taylor. Sam’s gross estate totals $10.2 million, he owed debt
> Three years ago, Mario joined the MN Partnership by contributing land with a $10,000 basis and an $18,000 FMV. On January 15 of the current year, Mario has a basis in his partnership interest of $20,000, and none of his precontribution gain has been reco
