Question: Sweetie, a calendar year S corporation, reports

> Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for its fair market value of $100,000. a. What is Lisa’s realized and recognized gain or loss? b. What is Alfred’s recognized gain or loss if he subsequently sells the pr

> Luciana, a nonshareholder, purchases a condominium from her employer for $85,000. The fair market value of the condominium is $120,000. What is Luciana’s basis in the condominium and the amount of any income as a result of this purchase?

> Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $85,000) is worth $100,000 and Johnathan’s land has a fair market value of $80,000, Johnathan also gives Logan cash of $20,00

> Lefty completes the following capital asset transactions. Compute Lefty’s recognized capital gain or loss from these transactions. Long-term gain………. $10,000 Short-term gain………. 4,000 Short-term loss………. 25,000

> Leilei operates a sole proprietorship, using the accrual basis of tax accounting. Last year, she claimed a $10,000 bad debt deduction for a receivable from Jackie. But this year, Jackie sent her a check for $7,000, which Leilei accepted in full satisfact

> Lisbeth makes the following interest-free loans during the year. The relevant Federal interest rate is 5 percent, and none of the loans are motivated by tax avoidance. All of the loans were outstanding for the last six months of the tax year. Identify th

> Champ received a $10,000 distribution from NeatCo, a U.S. C corporation. NeatCo’s earnings and profits for the year totaled $6,000. How much dividend income does Champ recognize? What Federal income tax rate applies to the dividend if Champ’s ordinary in

> Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities. I da has a marginal tax rate of 28%. She has $12,000 of losses from Activity A, $18,000 of losses from Activity B, and income of

> In January 2015, Wanda transferred machinery worth $200,000 (adjusted basis of $30,000) to a controlled corporation, Oriole, Inc. The transfer qualified under § 351. Wanda had deducted $165,000 of depreciation on the machinery while it was used in her pr

> During the current year, Gene, a CPA, performs services as follows: 1,800 hours in his tax practice and 50 hours in an apartment leasing operation in which he has a 15% interest. Because of his oversight duties, Gene is considered to be an active partic

> Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice about filing separately to save taxes. Their income and exp

> You have just met with Scott Myers (603 Pittsfield Drive, Champaign, IL 61821), a successful full-time real estate developer and investor. During your meeting, you discussed his tax situation because you are starting to prepare his current Federal income

> Five years ago, Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2014, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows: Year

> Jonathan, a physician, earns $200,000 from his practice. He also receives $18,000 in dividends and interest from various portfolio investments. During the year, he pays $45,000 to acquire a 20% interest in a partnership that produces a $300,000 loss. Com

> Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year). Without considering the loss from the activity, she has gross income of $140,000. If the acti

> A number of years ago, Lee acquired a 20% interest in the BlueSky Partner- ship for $60,000. The partnership was profitable through 2014, and Lee’s amount at risk in the partnership interest was $120,000 at the beginning of 2015. BlueSky incurred a loss

> The end of the year is approaching, and Maxine has begun to focus on ways of minimizing her income tax liability. Several years ago, she purchased an investment in Teal Limited Partnership, which is subject to the at-risk and the passive activity loss ru

> Kristin Graf (123 Baskerville Mill Road, Jamison, PA 18929) is trying to decide how to invest a $10,000 inheritance. One option is to make an additional investment in Rocky Road Excursions in which she has an at-risk basis of $0, suspended losses under t

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

> Alice and Jane form Osprey Corporation. Alice transfers property, basis of $25,000 and fair market value of $200,000, for 50 shares in Osprey Corporation. Jane transfers property, basis of $50,000 and fair market value of $165,000, and agrees to serve as

> John, an engineer, operates a separate business that he acquired eight years ago. If he participates 85 hours in the business and it incurs a loss of $34,000, under what circumstances can John claim an active loss?

> In the current year, White, Inc., earns $400,000 from operations and receives $36,000 in dividends and interest from various portfolio investments. White also pays $150,000 to acquire a 20% interest in a passive activity that produces a $200,000 loss. a

> Leon sells his interest in a passive activity for $100,000. Determine the tax effect of the sale based on each of the following independent facts: a. Adjusted basis in this investment is $35,000. Losses from prior years that were not deductible due to t

> Sarah has investments in four passive activity partnerships purchased several years ago. Last year, the income and losses were as follows: Activity Income (Loss) A ……………………………………………………. $ 30,000 B …

> Jorge owns two passive investments, Activity A and Activity B. He plans to dispose of Activity A in the current year or next year. Juanita has offered to buy Activity A this year for an amount that would produce a taxable passive gain to Jorge of $115,0

> A number of years ago, Kay acquired an interest in a partnership in which she is not a material participant. Kay’s basis in her partnership interest at the beginning of 2014 is $40,000. Kay’s share of the partnership loss is $35,000 in 2014, while her sh

> In the current year, Bill Parker (54 Oak Drive, St. Paul, MN 55164) is considering making an investment of $60,000 in Best Choice Partnership. The prospectus provided by Bill’s broker indicates that the partnership investment is not a passive activity an

> In 2014, Fred invested $50,000 in a general partnership. Fred’s interest is not considered to be a passive activity. If his share of the partnership losses is $35,000 in 2014 and $25,000 in 2015, how much can he deduct in each year?

> Mary, a single taxpayer with two dependent children, has the following items of income and expense during 2015: Gross receipts from business…………………………. $144,000 Business expenses…………………………………………. 180,000 Alimony received …………………………………………. 22,000 Interes

> In 2012, John opened an investment account with Randy Hansen, who held himself out to the public as an investment adviser and securities broker. John contributed $200,000 to the account in 2012. John provided Randy with a power of attorney to use the $20

> Early in the year, Charles, Lane, and Tami form the Harrier Corporation for the express purpose of developing a shopping center. All parties are experienced contractors, and they transfer various business assets (e.g., building materials, land) to Harrie

> Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information is as follows: Because of the extensive damage caused by the tornado, the President designated the area a disaster area. Olaf and h

> Mary, a single taxpayer, purchased 10,000 shares of § 1244 stock several years ago at a cost of $20 per share. In November of the current year, Mary receives an offer to sell the stock for $12 per share. She has the option of either selling all of the st

> Jake and Mary Snow are residents of the state of New York. They are cash basis taxpayers and file a joint return for the calendar year. Jake is a licensed master plumber. Two years ago, Jake entered into a contract with New York City to perform plumbing

> Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan.

> Several years ago, Loon Finance Company, which is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for bankruptcy, and Loon was notified that it could not e

> In the current year, Abe gives an interest in a passive activity to his daughter, Andrea. The value of the interest at the date of the gift is $25,000, and its adjusted basis to Abe is $13,000. During the time that Abe owned the investment, losses of $3,

> Andrew sends Godiva chocolates to 10 of his key clients at Christmas. The chocolates cost $50 a box not including $4 for gift wrapping and shipping. How much can Andrew deduct?

> After accepting his first job upon graduating from college, Christian has the following moving expenses: Rental of moving van ………………………. $450 Meals ……………………………………………….200 Lodging……………………………………………. 250 Presuming no reimbursement, what is Christian’s movi

> Fred travels from Denver to Miami primarily on business. He spends five days conducting business and two days sightseeing. His expenses are $400 (air- fare), $150 per day (meals), and $300 per night (lodging). What are Fred’s deductible expenses? Answ

> Michael holds a full-time job with Brown Company and a part-time job with Tan Corporation. During a workday, he drives 20 miles to Brown, returns home, has a meal, and then drives 15 miles to Tan. Tan is located 12 miles from Brown. What is Michael’s ded

> Nancy and her daughter, Kathleen, have been working together in a cattery called “The Perfect Cat.” Nancy formed the business in 2000 as a sole proprietorship, and it has been very successful. Assets have a fair market value of $450,000 and a basis of $1

> Constanza, who is single, sells her current personal residence (adjusted basis of $165,000) for $450,000. She has owned and lived in the house for 30 years. Her selling expenses are $22,500. What is Constanza’s realized and recognized gain?

> Camilo’s property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken. a. What is Camilo’s realized and recognized gain? b. What is the

> Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. What is Sebastian’s basis in these

> Selma operates a contractor’s supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2015, Selma reported cash receipts of $1.4 million, wh

> One of your clients, Texas, Inc., is considering electing S status. Both of Texas’s equal shareholders paid $30,000 for their stock. As of the beginning of 2013, Texas’s Subchapter C NOL carryforward is $110,000. Its taxable income projections for the ne

> 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 Cougar’s corporat

> Valence Corporation’s Form 1120S shows ordinary income of $88,000 for the year. Daniel owns 40% of the Valence stock throughout the year. The following information is obtained from the corporate records. Salary paid to Daniel ………………………………………………………… ($40

> 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 both total $200,000. Write a memo to

> McLin, Inc., a calendar year S corporation, holds $90,000 of AEP. Tobias, the sole McLin shareholder, has an $80,000 basis in his stock with a zero balance in the AAA. a. Determine the tax aspects if a $90,000 salary is paid to Tobias. b. Same as (a),

> Kesha, a sole proprietor, is engaged in a cash basis service business. In the current year, she incorporates the business to form Kiwi Corporation. She transfers assets with a basis of $500,000 (fair market value of $1.2 million), a bank loan of $450,000

> 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) Depreciation expense

> 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 ………………………………

> 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 e

> Mary is a shareholder in CarrollCo, a calendar year S corporation. At the be- ginning 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 a $6,000 cash d

> Junie’s share of her S corporation’s net operating loss is $50,000, but her stock basis is only $30,000. Point out the Federal income tax consequences that Junie must face.

> Scott Tyrney 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 the tax research file, identifying the key differences between AAA and an S shareholder’s stock basis.

> On March 2, 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 of the same year. Identify any potential pro

> C&C Properties is an S corporation that owns two rental real estate under- takings: Carrot Plaza and Cantaloupe Place. Both properties produce an annual $10,000 operating loss. C&C’s Schedule K aggregates the results of the two locations into one number.

> In 2015, Susan’s sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax). a. Calculate the maximum amount Susan can deduct for contributions to a defined contribution Keogh plan. b. Sup

> Rafael transfers the following assets to Crane Corporation in exchange for all of its stock. (Assume that neither Rafael nor Crane plans to make any special tax elections at the time of incorporation.) a. What is Rafael’s recognized gain or loss? b. What

> Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active participants in employer qualified retirement plans. Their total AGI in 2015 is $186,000, and they earn salaries of $87,000 and $95,000, respectively. What

> Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $63,000 in 2015. a. Calculate the amount Janet can contribute to a traditional IRA and the amount she can deduct. b. Assume instead that Janet

> Charles has AGI of $94,000 during the year and the following expenses related to his employment: Lodging while in travel status……………………………………………. $5,000 Meals during travel…………………………………………………………… 4,000 Business transportation ………………………………………………………6,000

> During the year, Brenda has the following expenses related to her employment: Airfare ……………………………………………………………………………………. $8,500 Meals………………………………………………………………………………………. 4,000 Lodging ……………………………………………………………………………………. 4,900 Transportation while in travel s

> In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses). a. Lily is single and is employed as an architect. During 2015, she spent $4,100 in tuit

> Elijah is employed as a full-time high school teacher. The school district for which he works recently instituted a policy requiring all of its teachers to start working on a master’s degree. Pursuant to this new rule, Elijah spent most of the summer of

> Upon losing his job as a plant manager in Quincy, Massachusetts, Anthony incurs $6,200 in job search expenses. Having no success in finding new employment in the same type of work, Anthony moves to Clearwater, Florida, in 2015 and begins a charter boat b

> Veronica is a key employee of Perdiz Corporation, an aerospace engineering concern located in Seattle. Perdiz would like to establish an office on the east coast of Florida and wants Veronica to be in charge of the branch. Veronica is hesitant about maki

> On Thursday, Justin flies from Baltimore (his home office) to Cadiz (Spain). He conducts business on Friday and Tuesday; vacations on Saturday, Sunday, and Monday (a legal holiday in Spain); and returns to Baltimore on Thursday. Justin was scheduled to r

> In June of this year, Dr. and Mrs. Bret Spencer traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Dentistry. Bret, a practicing oral surgeon, participated in scheduled technical sessions dealing with the lat

> Allie forms Broadbill Corporation by transferring land (basis of $125,000, fair market value of $775,000), which is subject to a mortgage of $375,000. One month prior to incorporating Broadbill, Allie borrows $100,000 for personal rea- sons and gives the

> Kristen, the regional manager for a national hardware chain, is based in Atlanta. During March and April of this year, she has to replace temporarily the district manager in Jackson (Mississippi). During this period, Kristen flies to Jack- son on Sunday

> William is employed by an accounting firm and uses his automobile in connection with his work. During the month of October 2015, he works at the office for 3 days and participates in the audit of a key client for 19 days. In the audit situation, William

> George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2015, George began working in London. He worked there until January 31, 2016, when he transferred to Paris. He worked in Paris the remainder of 2016. His

> Bluebird, Inc., does not provide its employees with any tax-exempt fringe benefits. The company is considering adopting a hospital and medical bene- fits insurance plan that will cost approximately $9,000 per employee. To adopt this plan, the company may

> Several of Egret Company’s employees have asked the company to create a hiking trail that employees could use during their lunch hour. The company owns vacant land that is being held for future expansion, but would have to spend approximately $50,000 if

> Ted works for Azure Motors, an automobile dealership. All employees can buy a car at the company’s cost plus 2%. The company does not charge employees the $300 dealer preparation fee that nonemployees must pay. Ted purchased an automobile for $29,580 ($2

> Sparrow Corporation would like you to review its employee fringe benefits program with regard to the tax consequences of the plan for the company’s president (Polly), who is also the majority shareholder. a. The company has a qualified retirement plan.

> Rosa’s employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter’s dental expenses and other medical expenses that are not covered by health insurance. Rosa is in the 28% marginal tax bracket and estimates that t

> Finch Construction Company provides the carpenters it employs with all of the required tools. However, the company believes that this has led to some employees not taking care of the tools and to the mysterious disappearance of some of the tools. The com

> Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company office. The company-provided home is equipped with high-spe

> Adam transfers property with an adjusted basis of $50,000 (fair market value of $400,000) to Swift Corporation for 90% of the stock. The property is subject to a liability of $60,000, which Swift assumes. a. What is the basis of the Swift stock to Adam?

> Does the taxpayer recognize gross income in the following situations? Explain. a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises for her lunch, but she usually eats in the company’s cafeteria because it is qui

> Casey is in the 15% marginal tax bracket, and Jean is in the 35% marginal tax bracket. Their employer is experiencing financial difficulties and cannot continue to pay for the company’s health insurance plan. The annual premiums are approximately $8,000

> Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha’s home is on 20 acres, half of whic

> Caramel Corporation has 5,000 shares of stock outstanding. In a qualifying stock redemption, Caramel distributes $145,000 in exchange for 1,000 of its shares. At the time of the redemption, Caramel has recorded paid-in capital of $800,000 and E & P of $3

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

> Using the legend provided, indicate which form of business entity each of the following characteristics describes. Some of the characteristics may apply to more than one form of business entity. a. Has limited liability. b. Greatest ability to raise cap

> Maurice Allred is going to purchase either the stock or the assets of Jewel Corporation. All of the Jewel stock is owned by Charley. Maurice and Charley agree that Jewel is worth $700,000. The tax basis for Jewel’s assets is $500,000. Write a letter to M

> Vladimir owns all of the stock of Ruby Corporation. The fair market value of the stock (and Ruby’s assets) is about four times his adjusted basis for the stock. Vladimir is negotiating with an investor group for the sale of the corporation. Identify the

> Hector and Walt are purchasing the Copper Partnership from Jan and Gail for $700,000; Hector and Walt will be equal partners. During the negotiations, Jan and Gail succeeded in having the transaction structured as the purchase of the partnership rather t

> Gail and Harry own the GH Partnership. They have conducted the business as a partnership for 10 years. The bases for their partnership interests are as follows. GH Partnership holds the following assets. Gail and Harry sell their partnership interests to

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

> Linda is the owner of a sole proprietorship. The entity has the following assets. Linda sells the business for $260,000 to Juan a. Determine the tax consequences to Linda, including the classification of any recognized gain or loss. b. Determine the ta

> Emily and Freda are negotiating with George to purchase the business he operates as Pelican, Inc. The assets of Pelican, Inc., a C corporation, are recorded as follows. George’s basis for the Pelican stock is $560,000. George is subjec

> Sanjay contributes land to a business entity in January of the current year for a 30% ownership interest. Sanjay’s basis for the land is $60,000, and the fair market value is $100,000. The business entity was formed three years ago by Polly and Rita, who

> Megan owns 55% and Vern owns 45% of a business entity. The owners would like to use the entity to share profits (55% for Megan and 45% for Vern) and to share losses (80% for Vern and 20% for Megan). Determine the tax consequences if the entity has a tax

> Jo and Velma are equal owners of the JV Partnership. Jo invests $500,000 cash in the partnership. Velma contributes land and a building (basis to her of $125,000, fair market value of $500,000). The entity then borrows $250,000 cash using recourse financ