Why do you think partnerships, rather than the individual partners, are responsible for making most of the tax elections related to the operation of the partnership?
> Laura Davis is a member in a limited liability company that has historically been profitable but is expecting to generate losses in the near future because of a weak local economy. In addition to the hours she works as an employee of a local business, sh
> Pam, Sergei, and Mercedes are all one-third partners in the capital and profits of Oak Grove General Partnership. Partnership debt is allocated among the partners in accordance with their capital and profits interests. In addition to their normal share o
> Oscar, Felix, and Marv are all one-third partners in the capital and profits of Eastside general partnership. In addition to their normal share of the partnership’s annual income, Oscar and Felix receive annual guaranteed payments of $7,000 to compensate
> Carmine was allocated the following items from the Piccolo LLC for last year: Ordinary business loss Nondeductible penalties Tax-exempt interest income Short-term capital gain Cash distributions Rank these items in terms of the order they should be appli
> Lane and Cal each own 50 percent of the profits and capital of High Yield LLC. High Yield owns a portfolio of taxable bonds and municipal bonds, and each year the portfolio generates approximately $10,000 of taxable interest and $10,000 of tax-exempt int
> This year, Alex’s distributive share from Eden Lakes Partnership includes $8,000 of interest income, $4,000 of net long-term capital gains, $2,000 net section 1231 gain from the sale of property used in the partnership’s trade or business, and $83,000 of
> This year, Darrel’s distributive share from Alcove Partnership includes $6,000 of interest income, $3,000 of dividend income, and $70,000 ordinary business income. a. Assume that Darrel materially participates in the partnership. How much of his distribu
> Jhumpa, Stewart, and Kelly are all one-third partners in the capital and profits of Firewalker general partnership. In addition to their normal share of the partnership’s annual income, Jhumpa and Stewart receive an annual guaranteed payment of $10,000 t
> On the last day of its current tax year, Buy Rite LLC received $300,000 when it sold a machine it had purchased for $200,000 three years ago to use in its business. At the time of the sale, the basis in the equipment had been reduced to $100,000 due to t
> Hoki Poki, a cash-method general partnership, recorded the following items for its current tax year: Rental real estate income…………………………………………………………………………..$2,000 Sales revenue……………………………………………………………………………………………$70,000 §1245 recapture income…………………………………
> What stock ownership tests must be met before a shareholder receives exchange treatment under the substantially disproportionate change-in-stock-ownership test in a stock redemption? Why is a change in stock ownership test used to determine the tax statu
> The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45/55 ratio. For year 1, the G&P partnership reports the fo
> Richard Meyer and two friends from law school recently formed Meyer and Associates as a limited liability partnership (LLP). Income from the partnership will be split equally among the partners. The partnership will generate fee income primarily from rep
> What is a tax basis capital account, and what type of tax-related information does it provide?
> How does the amount of debt allocated to a partner affect the amount of gain a partner recognizes when contributing property secured by debt?
> What is recourse and nonrecourse debt, and how is each generally allocated to partners?
> What is inside basis and outside basis, and why are they relevant for taxing partnerships and partners?
> Under what circumstances is it possible for partners to recognize gain when contributing property to partnerships?
> What is the rationale for requiring partners to defer most gains and all losses when they contribute property to a partnership?
> What is a partnership interest, and what specific economic rights or entitlements are included with it?
> Compare and contrast the aggregate and entity concepts for taxing partnerships and their partners.
> In general, what causes a stock dividend to be taxable to the recipient?
> What types of business entities are taxed as flow-through entities?
> What is a flow-through entity, and what effect does this designation have on how business entities and their owners are taxed?
> Under what circumstances can partners with passive losses from partnerships deduct their passive losses?
> How do partners determine whether they are passive participants in partnerships when applying the passive activity loss limitation rules?
> In what order are the loss limitation rules applied to limit partner’s losses from partnerships?
> How do partners measure the amount they have at risk in the partnership?
> In what sense is the at-risk loss limitation rule more restrictive than the tax basis loss limitation rule?
> What happens to partnership losses allocated to partners in excess of the tax basis in their partnership interests?
> What hurdles (or limitations) must partners overcome before they can ultimately deduct partnership losses on their tax returns?
> What items will decrease a partner’s basis in her partnership interest?
> Why might a corporation issue a stock dividend to its shareholders?
> What items will increase a partner’s basis in her partnership interest?
> Why does a partner’s tax basis in her partnership need to be adjusted annually?
> In what situations do partners need to know the tax basis in their partnership interests?
> What are the basic tax-filing requirements imposed on partnerships?
> How much flexibility do partnerships have in allocating partnership items to partners?
> What challenges do LLCs face when deciding whether to treat their members’ shares of ordinary business income as self-employment income?
> How do general and limited partners treat their share of ordinary business income for self-employment tax purposes?
> What are guaranteed payments and how do partnerships and partners treat them for income and self-employment tax purposes?
> Is the character of partnership income/gains and expenses/losses determined at the partnership or partner level? Why?
> What are some common separately stated items, and why must they be separately stated to the partners?
> Amy is the sole shareholder of a corporation. Rather than have the corporation pay her a dividend, Amy decides to have the corporation declare a “bonus” at year-end and pay her tax-deductible compensation. What potential tax issue may arise in this situa
> What is a partnership’s ordinary business income (loss) and how is it calculated?
> When are partnerships eligible to use the cash method of accounting?
> Explain the least aggregate deferral test for determining a partnership’s year end and discuss when it applies.
> In what situation will there be a common year-end for the principal partners when there is no majority interest taxable year?
> If a partner with a taxable year-end of December 31 is in a partnership with a March 31 taxable year-end, how many months of deferral will the partner receive? Why?
> How do partners who purchase a partnership interest determine the tax basis and holding period of their partnership interests?
> Distinguish between a capital interest and a profits interest, and explain how partners and partnerships treat when exchanging them for services provided.
> Aaron, Deanne, and Keon formed the Blue Bell General Partnership at the beginning of the current year. Aaron and Deanne each contributed $110,000 and Keon transferred an acre of undeveloped land to the partnership. The land had a tax basis of $70,000 and
> LeBron, Dennis, and Susan formed the Bar T LLC at the beginning of the current year. LeBron and Dennis each contributed $200,000 and Susan transferred several acres of agricultural land she had purchased two years earlier to the LLC. The land had a tax b
> A shareholder receives appreciated noncash property in a corporate distribution and assumes a liability attached to the property. How does this assumption affect the amount of gain the corporation recognizes? From the corporation’s perspective, does it m
> What was IBM’s accounting effective tax rate for 2014? What items caused the company’s accounting effective tax rate to differ from the “hypothetical” tax rate of 35 percent? What was the company’s cash effective tax rate for 2014? What factors cause a c
> Assume that on January 1, year 1, ABC, Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the per share price of ABC stock on January 1, year 1 whe
> On July 1 of year 1, Riverside, Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had a basis of $1,200,000 in goodwill
> JDog corporation owns stock in Oscar, Inc. JDog received a $10,000 dividend from Oscar, Inc. What temporary book-tax difference associated with the dividend will JDog report for the year in the following alternative scenarios (income difference only - ig
> Assume Maple Corp. has just completed the third year of its existence (year 3). The table below indicates Maple’s ending book inventory for each year and the additional §263A costs it was required to include in its ending inventory. Maple immediately exp
> On its year 1 financial statements, Seatax Corporation, an accrual-method taxpayer, reported federal income tax expense of $570,000. On its year 1 tax return, it reported a tax liability of $650,000. During year 1, Seatax made estimated tax payments of $
> ELS corporation is about to begin its sixth year of existence. Assume that ELS reported gross receipts for each of its first five years of existence for scenarios A, B, and C as follows: a. In what years is ELS allowed to use the cash method of accountin
> ATW corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the current year was $7,000,000. If ATW had been using the LIF
> In year 1, Lazy Corporation reported a $500,000 net operating loss for regular tax purposes and a $450,000 net operating loss for alternative minimum tax purposes (called an alternative tax net operating loss). In year 2, Lazy reported $450,000 of taxabl
> In year 1, GSL Corp.’s alternative minimum tax base was $2,000,000 and its regular tax liability is $350,000. a. What is GSL’s total tax liability for years 1, 2, 3, and 4 (by year) assuming the following? Year 2: AMT base $600,000; Regular tax liabili
> Compute ACC, Inc.’s tentative minimum tax (TMT), alternative minimum tax (AMT), and minimum tax credit (MTC) in each of the following alternative scenarios: a. ACC’s alternative minimum tax base is $500,000 and its regular tax liability is $80,000. b. AC
> What is a tax position as it relates to the application of ASC 740 to uncertain tax positions?
> Assume JJ Inc. must pay the AMT for the current year. Near the end of the year, JJ is considering making a charitable contribution of $20,000. What is its after-tax cost of the contribution under each of the following alternative scenarios? a. JJ’s AMTI
> Assume CDA corporation must pay the AMT for the current year. It is considering entering into a transaction that will generate $20,000 of income for the current year. What is CDA’s after-tax benefit of receiving this income in each of the following alter
> What is WSS Corporation’s AMT base in each of the following scenarios? a. WSS’s AMTI is $50,000. b. WSS’s AMTI is $175,000. c. WSS’s AMTI is $300,000. d. WSS’s AMTI is $1,000,000.
> During the current year, FTP Corporation reported regular taxable income of $500,000. FTP used the following information in its tax-related computations: • $12,000 interest from Irvine City bonds: Bonds issued in 2013 and proceeds used to fund public sch
> During the current year, ELS Corporation reported the following tax-related information: • $5,000 tax exempt interest from public activity bonds issued in 2008. • $45,000 gain included in taxable income under the installment method. The installment sale
> During the current year, CRS Inc. reported the following tax-related information: • $10,000 tax-exempt interest from public activity bonds issued in 2013. • $16,000 tax-exempt interest from private activity bonds issued in 2013. • $150,000 death benefit
> Last year, Cougar Corp. (CC) reported a net operating loss of $25,000. In the current year, CC expected its current year tax liability to be $440,000 so it made four equal estimated tax payments of $110,000 each. Cougar closed its books at the end of eac
> Last year, JL Corporation’s tax liability was $900,000. For the current year, JL Corporation reported the following taxable income at the end of its first, second, and third quarters (see table below). What are JL’s mi
> For the current year, LNS corporation reported the following taxable income at the end of its first, second, and third quarters. What are LNS’s minimum first, second, third, and fourth quarter estimated tax payments determined using the
> Last year, BTA Corporation, a calendar-year taxpayer, reported a net operating loss of ($10,000) and a $0 tax liability. BTA confidently anticipates a current year tax liability of $240,000. What minimum estimated tax payments should BTA make for the fir
> Briefly describe the two step process a company must undertake when it evaluates whether it can record the tax benefit from an uncertain tax position under ASC 740.
> Last year, TBA Corporation, a calendar-year taxpayer, reported a tax liability of $100,000. TBA confidently anticipates a current year tax liability of $240,000. What minimum estimated tax payments should TBA make for the first, second, third, and fourth
> ABC’s taxable income for the year is $25,000 and CBA’s taxable income for the year is $10,000,000. Compute the combined tax liability of the two corporations assuming the following: a. Amanda, Jermaine, and O’Neil each own one-third of the stock of ABC a
> ABC’s taxable income for the year is $200,000 and CBA’s taxable income for the year is $400,000. Compute the combined tax liability of the two corporations assuming the following: a. Amanda, Jermaine, and O’Neil each own one-third of the stock of ABC and
> Wasatch Corp. (WC) received a $200,000 dividend from Tager Corporation (TC). WC owns 15 percent of the TC stock. Compute WC’s deductible DRD in each of the following situations: a. WC’s taxable income (loss) without the dividend income or the DRD is $10
> Riverbend Inc. received a $200,000 dividend from stock it held in Hobble Corporation. Riverbend’s taxable income is $2,100,000 before deducting the dividends received deduction (DRD), a $40,000 NOL carryover, a $10,000 domestic production activities dedu
> Maple Corp. owns several pieces of highly valued paintings that are on display in the corporation’s headquarters. This year, it donated one of the paintings valued at $100,000 (adjusted basis of $25,000) to a local museum for the museum to display. What
> Coattail Corporation (CC) manufactures and sells women and children’s coats. This year CC donated 1,000 coats to a qualified public charity. The charity distributed the coats to needy women and children throughout the region. At the time of the contribut
> In year 1 (the current year), LAA Inc. made a charitable donation of $100,000 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $550,000 which included a $100,000 charitable contribution deduction (before limi
> In year 1 (the current year), OCC Corp. made a charitable donation of $200,000 to the Jordan Spieth Family Foundation (a qualifying charity). For the year, OCC reported taxable income of $1,500,000 before deducting any charitable contributions, before de
> For tax purposes, what happens to a corporation’s charitable contributions that are not deducted in the current year because of the taxable income limitation?
> What is a company’s book equivalent of taxable income and how does this computation enter into the income tax provision process?
> Which limitations might restrict a corporation’s deduction for a cash charitable contribution? Explain how to determine the amount of the limitation.
> A corporation commissioned an accounting firm to recalculate the way it accounted for leasing transactions. With the new calculations, the corporation was able to file amended tax returns for the past few years that increased the corporation’s net operat
> What must a decision maker consider when deciding whether to carry back a net operating loss or to elect to forgo the carryback?
> What is the carryback and carryover period for a net operating loss? Does it depend on the size of the corporation? Explain.
> What are the common book-tax differences relating to accounting for capital gains and losses? Do these differences create favorable or unfavorable book-to-tax adjustments?
> How do corporations account for capital gains and losses for tax purposes? How is this different from the way individuals account for capital gains and losses?
> Describe the book-tax differences that arise from nonqualified stock options granted after ASC 718 became effective.
> Describe the book-tax differences that arise from incentive stock options granted after ASC 718 became effective.
> Describe the book-tax differences that arise from incentive stock options and nonqualified stock options granted before ASC 718 became effective.
> Describe how goodwill recognized in an asset acquisition leads to temporary book-tax differences.
> What are the elements that define a tax planning strategy as it applies to determining if a valuation allowance is necessary? Provide an example where a tax planning strategy may be necessary to avoid recording a valuation allowance.
> When a corporation receives a dividend from another corporation does the dividend generate a book-tax difference to the dividend-receiving corporation (ignore the dividends received deduction)? Explain.
