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business
federal taxation 2019

Questions and Answers of Federal Taxation 2019

Compute the realized and recognized gain or loss and the new basis in the following transactions, all of which took place pursuant to a plan of recapitalization.a. A shareholder exchanged 100 shares
Kelly owns all the stock in Duncan Corp. Her Duncan stock has a basis of \(\$ 120,000\) and a fair market value of \(\$ 150,000\). Duncan Corp. is merged into Munro Corp. Pursuant to the
Northwestern Ltd. (NW) acquires the only class of stock of Southeastern Ltd. (SE) from the latter's shareholders. Which of the following independent transactions qualify as a Type B reorganization?a.
Carson Corporation has a basis of \(\$ 10\) million in the stock of its 100 -percent-owned subsidiary, Griffen Corporation. Both Carson and Griffen have been actively conducting business for more
Rose Inc. is an accrual-basis, calendar-year corporation with only voting common stock outstanding. On October 19, 2018, it acquired the assets of Nagg Inc. by issuing 3,000 of its voting common
Nardine Corporation acquired Tabor Corporation pursuant to a statutory merger under state law. As a result of the merger, Tabor Corporation's former shareholders received common stock in Nardine
Mountain Corporation forms Hill Corporation, and acquires Mound Corporation by merging Mound into Hill Corporation, with the former Mound Corporation shareholders receiving solely voting stock of
Pursuant to a corporate reorganization, Marcia exchanged stock she owned in Casey Corp. for stock in Mills Corp. valued at \(\$ 70,000\), plus a Mills Corp. bond worth \(\$ 9,000\) (face amount of
Green Corporation purchased 100 percent of the outstanding stock of White Corporation during 2016. During 2018, Green Corporation distributes all of its White Corporation stock to Green shareholders.
Holly, the sole shareholder of Peach Corporation, has a basis for her Peach stock of \(\$ 500,000\). As part of a statutory merger of Peach Corporation into Pear Corporation, Holly exchanges her
Wood Corporation is owned equally by two individuals-Allan and Baker. Wood Corporation has two operating divisions, Oak and Pine, that have been conducting business for more than five years. Allan
Parent Corporation and its wholly owned Subsidiary Corporation wish to acquire the stock of Target Corporation. Target has outstanding 100,000 shares of common stock and \(\$ 300,000\) of convertible
Metal Corporation owns all of the stock of Iron Corporation, and owns 100 shares of Steel Corporation, which has 1,000 shares of stock outstanding. The 100 shares of Steel were purchased by Metal in
Pursuant to a Type D corporate reorganization, Cheng Corp. transferred some of its assets to newly formed Racine Corp. The assets transferred had a basis of \(\$ 60,000\) and a value of \(\$
Shipyard Corp. acquired Boatworks Corp. in a Type A reorganization on July 1, 2018. On the date of acquisition, Boatworks had a deficit in its earnings and profits of \(\$ 30,000\). Although Shipyard
Gate Corp. acquired all of Way Corp's assets in a Type C reorganization on October 19, 2018. On the date of acquisition, Way Corp. had an unused net capital loss of \(\$ 70,000\). Gate Corp. had a
Diamond Corp. acquired all of Emerald Corp's assets in a Type A reorganization on December 31, 2017. On the date of acquisition, Diamond had accumulated earnings and profits of \(\$ 400,000\), and
Maples Corp., whose outstanding stock is worth \(\$ 4\) million, has a net operating loss carryforward of \(\$ 1\) million. Maples is owned 45 percent by Alan and 55 percent by Cline, who are
Tiburon Corp. proposes to acquire Target Corp. in a tax-deferred triangular merger using its 100\%-owned Subsidiary Corp. The sole shareholder of Target will receive \(\$ 350,000\) of Tiburon Corp.
Denise owns Gal Corp. stock which she purchased ten years ago for \(\$ 370,000\). Pursuant to a plan of corporate reorganization, Gal Corp. will be merged into Lewis Corp. As a result of the merger,
Determine whether the following transactions qualify as Type \(\mathrm{C}\) reorganizations:a. The acquisition of all assets and liabilities of Bark Inc. by Ark Inc. for 20 percent of Ark's voting
Research Problem. Mr. Aslak owns all the stock in Shoes Inc., which owns 85 percent of Skiing Inc. Ms. Quinn, the manager of Skiing, wishes to share in the profits of the prosperous firm by buying 5
Research Problem. In practice, the number of shares paid for an acquired corporation may be contingent on its future performance (e.g., sales and/or earnings). Perhaps 500,000 shares are "paid" up
May the personal holding company tax and the accumulated earnings tax be imposed on the following corporations?a. The same corporation in the same taxable yearb. The same corporation in two different
What is the tax rate on undistributed personal holding company income? On accumulated taxable income?
What is the impact of accelerated cost recovery on the personal holding company tax? On the accumulated earnings tax?
The Loophole Tax Service Inc. has accumulated earnings of \(\$ 135,000\) and current earnings of \(\$ 60,000\). If the dividendspaid deduction is \(\$ 8,500\) and reasonable business needs amount to
A manufacturer of billiard and bowling equipment paid an accumulated earnings tax of \(\$ 45,000\), relating to the previous taxable year. What is the impact on the tax situation of the corporation
Mr. Wilson incorporated his bookstore, Occult Books Unlimited, five years ago. Accumulated earnings are \(\$ 230,000\), current earnings are \(\$ 80,000\), and he can show a need for \(\$ 150,000\)
Margo's Cookies Inc. has working capital of \(\$ 210,000\). Selected operating figures include:According to the Bardahl formula, what is Margo's working capital need in total? Average inventory
War Games Inc. breaks even on its operations one year, but has dividend income of \(\$ 2,000\). Could it be a personal holding company?a. The following year, War Games has a net operating loss of
Party Supplies Inc. is owned 60 percent by Sylvester and 40 percent by an unrelated corporation. How much stock is Sylvester deemed to own after he makes the following independent transactions?a.
Parkview West Inc, has gross income of \(\$ 50,000\), consisting of \(\$ 37,000\) of rent receipts and \(\$ 13,000\) of U.S. dividends. Rental deductions of \(\$ 20,000\) are claimed (interest,
Ray Cutter, M.D., incorporated his medical practice. Soon thereafter, he transferred his stock portfolio to the corporation. Since Dr. Cutter is the only surgeon in the corporation, all patients
B-Flat Music Supplies Ltd. earned dividends of \(\$ 30,000\), interest of \(\$ 12,000\), adjusted rent of \(\$ 50,000\), and gross income from its primary business of \(\$ 63,000\) in one taxable
Lark Enterprises Inc. is a personal holding company. From the information below, compute its maximum dividends-paid deduction.a. Land with a basis of \(\$ 10,000\) and a value of \(\$ 50,000\) was
Parking Unlimited Ltd.'s financial situation last year may be summarized as follows:a. Is Parking Unlimited a PHC?b. Is the \(\mathbf{5 0}\) percent test met?c. How much must be paid in dividends, if
David Roberts runs a one-person corporation, a management consulting firm. For the first few years, he paid himself a minuscule salary, no dividends, and no fringe benefits, paying only the regular
Gary's Garage Inc. never paid a dividend and invested its after-tax earnings in tire company stock. It has no plans to expand and its working capital is ample. Gary owns 100 percent of the stock.a.
Nestor Corp., which is not a mere holding or investment company, derives its income from retail sales. Nestor had accumulated earnings and profits of \(\$ 145,000\) on December 31, Year 1. For the
To compute the accumulated taxable income, all of the items below are deductible, except:a. Federal income taxesb. After-tax net capital gainsc. Current dividendsd. Deficiency dividends
Engineering Valuations Inc. has accumulated earnings of \(\$ 190,000\) and current earnings of \(\$ 250,000\). The corporation can show a need to expand the business to the tune of \(\$ 220,000\).
To arrive at adjusted ordinary gross income from gross income, the following subtractions are made, except:a. Rent and royalty expensesb. Section 1231 gainsc. Ordinary and necessary business
Scandinavian Furniture Inc., a calendar-year corporation, is worried about the accumulated earnings tax. In February, the following facts are available for the preceding year:If the consent dividend
Marital Aids Inc. reported the following results last year:If the corporation has only four individual shareholders, compute the following:a. Adjusted ordinary gross income.b. Personal holding
To what extent may a corporation accumulate earnings for the reasonable needs of a related corporation?To what extent does it matter that the following conditions prevail?a. A parent-subsidiary
A corporation is resisting the personal holding company tax, but the Tax Court sides with the IRS. Within 90 days after the adverse decision, one shareholder transfers his stock and \(\$ 10,000\) in
If the partnership agreement contains no provision governing the event, what is the effect of a partner's death on the income tax reporting of the partnership? The deceased partner? The deceased
Under what circumstances will the Internal Revenue Service recognize a minor child as a partner in a service partnership? In a partnership where capital is a major incomeproducing item?.
In a bona fide, arm's-length transaction, a son, age 42, purchased from his father a 40 percent interest in the father's partnership, paying the full fair market value. The partnership is a
Joe Quick and Jane Reddy are equal partners in the Quick and Reddy partnership. On the first day of the current taxable year, Joe's adjusted basis in his partnership interest is \(\$ 10,000\) and
Diane Barnes has a 25 percent interest and Ester Newton has a 75 percent interest in the income and capital of D\&E Partnership. The partnership reports ordinary income of \(\$ 25,000\), tax-exempt
Paul Stanley transfers \(\$ 20,000\) in cash, Joe Sweitzer transfers machinery with an adjusted basis of \(\$ 5,000\) and a fair market value of \(\$ 20,000\), and David Raines transfers land with an
On September 1, 2013, Leonard contributed land held for investment with a fair market value of \(\$ 200,000\) and an adjusted basis to him of \(\$ 120,000\) for a 20 percent interest in the income
Elder Attorney had practiced law for several years and had accumulated \(\$ 50,000\) in accounts receivable. He reported his income for tax purposes under the cash receipts and disbursements method.
On January 17 of the current year, the Bamber Partnership was formed by Bob Miller, Carl Penn, and Don Allen. Each partner has an equal interest in the capital and profits of the partnership. The
On January 1, 2018, Kelley became a 10 percent partner of the Realty Partnership upon contributing land he had held as an investment for five years. The basis of the land to Kelley was \(\$
Marvin Bridges is a 25 percent partner in the Munson partnership. On November 23, 2017, Marvin contributes property with an adjusted basis of \(\$ 75,000\) and a fair market value of \(\$ 250,000\)
Jeff Able is a partner in the Willing and Able partnership. On June 1, 2018, Jeff transfers property to the partnership that has a fair market value of \(\$ 60,000\) and an adjusted basis to Jeff of
Susan Moore contributed land with an adjusted basis of \(\$ 500,000\) and a fair market value of \(\$ 800,000\) to the Whirligig partnership in exchange for a 20 percent interest in the partnership.
Jed Castanza transfers \(\$ 90,000\) of cash to the JN partnership for a 60 percent interest in the JN partnership. Ned transfers a building with an adjusted basis of \(\$ 30,000\) and a fair market
Assume the same facts as in problem 33 except that Ned's basis in the building is only \(\$ 20,000\). Determine each partner's adjusted basis in his partnership interest. Does either partner
James Michaels invested \(\$ 25,000\) for a one-third interest in the Jabo Partnership on January 1 of the current year. The partnership purchased a building site on February 5 at a cost of \(\$
Ruben and Albert are both calendar-year taxpayers, and are equal partners in the RA Partnership, which has a fiscal year ending on October 31. During the 2018-2019 fiscal year the partnership earns
The Nelson partnership begins business on July 17, 2018. It is not able to use business purpose to support a tax year. The four partners, their interests in partnership capital and profits, and their
In 2018 the XYZ Partnership incurred the following expenses:If XYZ began business on August 1, 2018, how much in total of these expenses could \(\mathrm{XYZ}\) deduct (including amortization)?
Ozone Partnership constructed an office building which has a projected annual income of \(\$ 100,000\) for several years. Archie Edwards, the architect for the building, whose normal fee is \(\$
Henry Hawkins owns a 20 percent interest in the HI Partnership. On July 1 he sold 100 shares of stock of IPR Corporation to the partnership for \(\$ 10,000\), its fair market value. The stock had
Assume that the HI Partnership in the preceding problem held the IPR stock for three months and on October 1 sold it for \(\$ 15,000\) to Isaac Stanley, the 80 percent partner and a real estate
Elaine is a \(30 \%\) partner in the DEF Partnership. She sells some land to the partnership for \(\$ 50,000\), incurring a \(\$ 30,000\) loss on the sale. How much of the loss can she deduct? What
Baker, a cash-basis, calendar-year taxpayer, is a partner in an accrual-basis partnership that reports its taxable income on an October 31 fiscal year. Baker has been provided the following
Because it was anticipated that Bob Short would devote more time to the partnership than would his equal partner Jack Long, it was agreed that Bob would receive a "salary" of \(\$ 12,000\) per year.
On January 1, 2015, Martha Carnes, fresh out of college, contributed \(\$ 10,000\) for a 30 percent interest in an accounting partnership. The senior partner was not attentive to the work, and the
Jack Dillon and Jake Johnson each own 50 percent of the capital interests in the JJ partnership. They share profits equally, but they agree to allocate 60 percent of the losses to Jack and 40 percent
Frank Caster and George Wilson were equal partners of the \(F \& G\) partnership, which reported its income on a fiscal year ending September 30. For fiscal year \(2017-\) 2018 , the partnership's
William Nest operated a consulting business as a sole proprietor in 2017, generating fees of \(\$ 50,000\). On January 1, 2018, he decided to set up a consulting partnership with his son Wilhelm.
For federal income tax purposes a partnership may be composed of:a. Two or more individualsb. An individual and a corporationc. A trust, an estate, and an individuald. Two or more partnershipse. All
The basis of a partner's interest in a partnership is increased by:a. Decreases in partnership liabilitiesb. Receipt by the partnership of an item of income that is excluded from the definition of
If the partnership agreement is silent regarding the matter:a. The partnership year ends upon the death of one partner in a two-person partnership.b. All items of income, deductions, and credits must
Comprehensive Problem. Hazel Patrick owns a building in which she practices dentistry. She also owns substantial amounts of equipment used in her practice. The building cost her \(\$ 100,000\) and
Comprehensive Problem. Barbara Thompson and Colleen Tiller are equal partners in the Boteq partnership. Barbara is age 72 and Colleen age 58. Both are unmarried and the partnership is their sole
Practice Problem-Tax Return Issues.} Adam, Barbara, and Charlotte formed the equal \(A B C\) Partnership; Adam and Barbara each contributed cash of \(\$ 100,000\), and Charlotte contributed land
Mary Black, Nell Brown, and Louise Gray each has her own computer equipment and service retail store. In an effort to potentially reduce their costs and increase their control over supply channels,
In general, gain or loss recognized on sale of an interest in a partnership is classified as capital gain or loss. Why?
How does the sale of a partnership interest compare to a liquidating distribution from a partnership? How do the tax consequences of the two transactions differ?
What is a "Section 754 election?" What does it allow the partnership to do?
Explain the difference between a basis adjustment under Section 743(b) and one under Section 734(b). Who benefits from each type of adjustment?
What is a partner's tax basis in a newly purchased partnership interest?
Assume a partnership does not have a Section 754 election in effect, and does not make one. If a new partner purchases his/her partnership interest from another partner, what will be his/her share of
How is a partnership affected for tax purposes when a partner sells his/her interest in the partnership to another person? Assume the partnership does not have a Section 754 election in effect and
Could a partner recognize a deductible loss for tax purposes on sale of his/her partnership interest to an unrelated buyer? What about on the receipt of a liquidating distribution from the
When does Section 736 apply to a liquidating distribution made to a partner?
Why is the application of Section 736 different for partnerships where capital is a material income-producing factor than for those where capital is not a material incomeproducing factor?
Who benefits when Section 736 is applied to a liquidating distribution, the partner or the partnership? Explain.
Mark, Pete and Mickey are equal partners in the 2MP Partnership. At the beginning of the year, Mark's basis in his partnership interest was \(\$ 15,000\), Pete's basis was \(\$ 10,000\), and Mickey's
Wilma, Clay and Nathan are equal partners in the Cousins Partnership. At the end of the year, Wilma's tax basis in her partnership interest was \(\$ 14,000\), Clay's basis was \(\$ 25,000\) and
Susan was a one-third partner in Anders Mountain Partners until last month. Last month, she received a cash distribution of \(\$ 25,000\) in "redemption" (i.e., partial liquidation) of half her
Craig received a cash distribution of \(\$ 50,000\) in liquidation of half of his one-fourth interest in White Family Partners. His tax basis in his partnership interest prior to the distribution was
Wayne, a one-third partner in the Count'em Partnership, received investment property worth \(\$ 100,000\) in redemption (i.e., partial liquidation) of half his interest. The partnership's tax basis
Jonna is a one-fourth partner in Andersen Partners. At the end of the year, her tax basis in her partnership interest was \(\$ 25,000\). At that time, she received a non-liquidating distribution from

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