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south western federal taxation

Questions and Answers of South Western Federal Taxation

LO.5 Is the DPAD available for purposes of the alternative minimum tax (AMT)?Explain.
LO.2, 5 Justin and Kathleen are equal partners in Blue Partnership. For the year, they receive a pass-through of the same amount of QPAI and W–2 wages from Blue. Justin, however, is able to claim a
LO.3, 5 MASH, Inc., produces two live television programs and licenses the first program to Clear, Inc., a television station. MASH licenses the second television program to Zebra’s television
LO.3, 5 Erica operates a chain of Tex-Mex fast-food outlets. She also wholesales frozen prepared meals to grocery stores.a. Can Erica claim a DPAD? Explain.b. Would it matter if all of the fast-food
LO.4 Once DPGR is determined, what adjustments are necessary to arrive at QPAI?
LO.3, 11 Only one producer may claim the DPAD. Explain.a. Why is this rule important in the area of contract manufacturing?b. Does the rule present any planning opportunities? If so, describe them.
LO.3 List the five categories of DPGR that qualify for the DPAD.
LO.1, 2 Define qualified production activities income.
LO.1, 2 What are the two safe harbors for calculating the W–2 wage amounts?
LO.1, 2 Do all W–2 wages have an impact on the DPAD? Explain.
LO.1, 2 How do NOLs affect the taxable income limitation for DPAD purposes?
LO.1 How is the DPAD treated for financial statement purposes?
LO.1 How is the maximum DPAD savings for a C corporation calculated?
LO.1, 2, 3, 4, 5 Explain the relationship between the following items:a. DPAD and W–2 wages.b. DPAD and QPAI.c. DPAD and TI.d. DPGR and QPAI.e. DPAD and AMT.f. EAG and DPAD.
LO.1 What impact can W–2 wages have on the amount of the DPAD?
LO.1 Indicate how a flow-through entity (e.g., sole proprietor) handles the DPAD.
LO.6 The following information for 2012 relates to Sparrow Corporation, a calendar year, accrual method taxpayer.Net income per books (after-tax) $174,100 Federal income tax per books 86,600
LO.6 Grouse Corporation, a calendar year C corporation, had taxable income of $1.4 million, $1.2 million, and $700,000 for 2009, 2010, and 2011, respectively. Grouse has taxable income of $1.6
LO.5 Red Corporation and White Corporation, both calendar year C corporations, are members of a controlled group of corporations. For 2012, Red has taxable income of$130,000, and White has taxable
LO.4 In each of the following independent situations, determine the corporation’s income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year
LO.3 Egret Corporation, a calendar year C corporation, was formed on March 7, 2012, and opened for business on July 1, 2012. After its formation but prior to opening for business, Egret incurred the
LO.3 Gull Corporation, a cash method, calendar year C corporation, was formed and began business on July 1, 2012. Gull incurred the following expenses during its first year of operations (July 1,
LO.3 In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations
LO.2 White Corporation, a calendar year C corporation, manufactures plumbing fixtures.For 2012, White has taxable income [before the domestic production activities deduction (DPAD)] of $900,000,
LO.2, 7 Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University
LO.2, 7 In 2012, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2007. Gray is contemplating a gift of land to a qualified charity
LO.2, 7 Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2012, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the
LO.2 Aquamarine Corporation, a calendar year C corporation, makes the following donations to qualified charitable organizations during the current year:Adjusted Basis Fair Market Value Painting held
LO.2 In 2012, Condor Corporation, a closely held C corporation that is not a PSC, has$225,000 of active business income, $35,000 of portfolio income, and a $300,000 passive loss from a rental
LO.2 Heron Company purchases commercial realty on November 13, 1994, for $650,000.Straight-line depreciation of $287,492 is claimed before the property is sold on February 22, 2012, for $850,000.
LO.2 During 2012, Gorilla Corporation has net short-term capital gains of $70,000, net long-term capital losses of $195,000, and taxable income from other sources of$620,000. Prior years’
LO.2 In 2012, Bronze Company had operating profit of $75,000 ($125,000 operating income − $50,000 operating expenses). In addition, Bronze had a short-term capital gain of $16,000 and a long-term
LO.2 In the current year, Sandpiper Corporation (a C corporation) had operating income of $215,000 and operating expenses of $155,000. In addition, Sandpiper had a long-term capital gain of $12,000
LO.2, 4 Ramona owns 100% of Violet Company. In 2012, Violet recognizes a longterm capital gain of $85,000 and no other income (or loss). Ramona is in the 35% tax bracket and has no recognized capital
LO.2 Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the remaining 49%. Each shareholder is employed by
LO.2, 4 Juan, an attorney, is the sole shareholder of Carmine Corporation, a C corporation and professional association. The corporation paid Juan a salary of $336,000 during its fiscal year ending
LO.1, 4, 7 Benton Company (BC) has one owner, who is in the 35% Federal income tax bracket. BC’s gross income is $295,000, and its ordinary trade or business deductions are $135,000. Compute the
LO.2 In 2012, Wilson Enterprises, a calendar year taxpayer, suffers a casualty loss of$90,000. How much of the casualty loss will be deductible by Wilson under the following circumstances?a. Wilson
LO.1 Purple Company has $200,000 in net income for 2012 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single and has no dependents. She claims the $5,950
LO.1, 2 Charlene owns 100% of Taupe Corporation, which had net operating income of $420,000 and long-term capital gain of $30,000 in 2012. Charlene has sufficient income from other sources to be in
LO.1 Ellie and Linda are equal owners in Otter Enterprises, a calendar year business.During the year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition,
LO.1 In 2012, Osprey Company had operating income of $320,000, operating expenses of $270,000, and a long-term capital gain of $20,000. How does Juanita, the sole owner of Osprey Company, report this
LO.6 In 2012, Woodpecker, Inc., a C corporation with $8.5 million in assets, deducted amortization of $40,000 on its financial statements and $55,000 on its Federal tax return.Is Woodpecker required
LO.6 Schedule M–1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation’s income tax return as follows: net income per books + additions −
LO.6 When are C corporations required to make estimated tax payments? How are these payments calculated?
LO.4 The highest marginal tax rate for a C corporation is 35%. Assess the validity of this statement.
LO.3 Determine whether the following expenditures by Cuckoo Corporation are organizational expenditures, startup expenditures, or neither.a. Legal expenses incurred for drafting the corporate charter
LO.3 Describe the holding period requirement of the dividends received deduction.
LO.3 Mauve Corporation (a C corporation) owns 85% of the stock of Lavender Corporation(a C corporation), which pays Mauve a substantial dividend each year. Mauve Corporation plans on selling half of
LO.1, 3 Marmot Corporation pays a dividend of $250,000 in 2012. Otter Corporation, which is in the 35% marginal bracket, owns 15% of Marmot’s stock. Gerald, an individual taxpayer in the 35%
LO.2, 3, 7 Gold Corporation, a calendar year C corporation, was formed in 2006 and has been profitable until the current year. In 2012, Gold incurs a net operating loss.Identify the issues that Gold
LO.2 For 2012, the domestic production activities deduction for a C corporation is 9%of the taxpayer’s qualified production activities income. Assess the validity of this statement.
LO.2, 7 The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 28, 2012. One topic on the board’s agenda is the approval of a $25,000
LO.2 Briefly describe how the amount of a charitable contribution of property by a C corporation is determined.
LO.2 On December 20, 2012, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $25,000 to the American Cancer Association. The payment
LO.2 Hummingbird Corporation, a closely held corporation that is not a PSC, has$40,000 of active income, $15,000 of portfolio income, and a $45,000 loss from a passive activity. What is
LO.2 Osprey Corporation, a closely held corporation, has $75,000 of active income,$25,000 of portfolio income, and a $60,000 loss from a passive activity.a. How much of the passive loss can Osprey
LO.2 John (a sole proprietor) and Eagle Corporation (a C corporation) each recognize a short-term capital gain of $6,000 and a long-term capital loss of $8,000 on the sale of capital assets. Neither
LO.2 In 2012, Jeanette, an individual in the 35% marginal tax bracket, recognized a$50,000 long-term capital gain. Also in 2012, Parrot Corporation, a C corporation in the 35% marginal tax bracket,
LO.2 Wang, a cash basis taxpayer, owns 65% of the stock of Pink, Inc., a calendar year, accrual basis C corporation. On January 2, 2012, Wang loaned Pink a substantial amount of money. On December
LO.2 Which of the following C corporations will be allowed to use the cash method of accounting for 2012? Explain your answers.a. Jade Corporation, which had gross receipts of $5.3 million in 2009,
LO.2 A corporate taxpayer may select either a calendar year or a fiscal year for its reporting period. Assess the validity of this statement.
LO.1 Briefly describe how LLCs are treated for Federal income tax purposes.
LO.1 Contrast the marginal tax rates of C corporations with those of individuals.
LO.1, 7 Shareholders of closely held corporations frequently engage in dealings with such corporations. These dealings provide an opportunity to extract earnings out of a corporate entity in some
LO.1, 2 Samantha is the sole owner of Blue Company. In 2012, Blue had operating income of $200,000, a short-term capital loss of $10,000, and tax-exempt interest income of $3,000. Samantha withdrew
LO.1, 2 In 2012, Plover Corporation, a C corporation with four equal shareholders, had an operating loss of $80,000 and a long-term capital gain of $20,000. Also in 2012, Vireo Partnership, with four
LO.1 Barbara owns 40% of the stock of Cassowary Corporation (a C corporation) and 40% of the stock of Emu Corporation (an S corporation). During 2012, each corporation has operating income of
Locate the following tax services in your library and indicate the name of the publisher:a. United States Tax Reporter.b. Standard Federal Tax Reporter.c. Federal Tax Coordinator 2d.d. Mertens Law of
Using the legend provided, classify each of the following citations as to the court:Legend T = U.S. Tax Court D = U.S. District Court C = U.S. Court of Federal Claims A = U.S. Court of Appeals U =
To which U.S. Court of Appeals would a person living in each of the following states appeal from the U.S. Tax Court?a. Louisiana.b. Utah.c. Alabama.d. Idaho.e. Vermont.
Using the legend provided, classify each of the following citations as to the location.A citation may have more than one answer.Legend IRC = Internal Revenue Code FR = Federal Register IRB = Internal
Explain what is meant by the following citations:a. Rev.Proc. 2001–10, 2001–1 C.B. 272.b. Rev.Rul. 93–86, 1993–2 C.B. 71.c. Notice 2001–76, 2001–2 C.B. 613.
Roy sells property (basis of $30,000) to Beige Corporation for $60,000. Based on the following conditions, how could the IRS challenge this transaction?a. Roy is the sole shareholder of Beige
Determine whether the following states are community property or common law states:a. Texas.b. Georgia.c. New Mexico.d. New York.e. Alaska.f. Nevada.
Bart exchanges some real estate (basis of $800,000 and fair market value of $1 million) for other real estate owned by Roland (basis of $1.2 million and fair market value of $900,000) and $100,000 in
Thelma owns some real estate (basis of $120,000 and fair market value of$65,000) that she would like to sell to her son, Sandy, for $65,000. Thelma is aware, however, that losses on sales between
Determine whether the following items are primary sources or secondary sources for the purpose of substantial authority.a. Revenue Ruling.b. Article written by a judge in Tax Notes.c. U.S. Tax Court
Jack Rogers needs to learn quickly about partial liquidations. How should Jack approach his research?
Referring to the citations only, determine which court issued these decisions.a. U.S. v. Gilmore, 372 U.S. 39 (1963).b. Pope v. USPS, 114 F.3d 1144 (CA–DC, 1997).c. Claymont Investment, Inc., T.C.
Cody Pappas calls you with respect to a tax issue. He has found a tax case in the U.S. District Court of South Carolina that is in favor of his position. The IRS lost and did not appeal the case.
Sammy Young calls you requesting an explanation of the fact-finding determination of a Federal Court of Appeals. Prepare a letter to be sent to Sammy answering this query. His address is 1072
Is § 1221(1) a proper Code Section citation? Why or why not?
Determine the subparts of § 1411(a)(2)(A).
In what subtitle are the Internal Revenue Code Sections located?
Did Congress recodify the Internal Revenue Code in 1986? Explain.
Yellow Corporation lends $235,000 to Red Corporation with no provision for interest.Yellow Corporation and Red Corporation are owned by the same shareholders.How might the IRS restructure this
How does the $13,000 annual gift tax exclusion help the IRS?
List the community property states.
What is “bracket creep”?
If a person is subject to both a sales tax and state income tax, what are his or her choices for Federal income tax purposes?
What is the justification for the Federal tax treatment of certain income from foreign sources?
Does a deduction for New York state and local taxes on the Federal income tax return neutralize the effect of multiple taxation? Explain.
Give an example where the concept of equity may explain a provision in the tax law.
What is the justification for the tax treatment to an employee of contributions made by an employer to qualified pension plans?
What purpose is served by the nontaxability to an employee of some of the premiums paid by an employer for group term life insurance covering the life of the employee?
List three tax provisions that can be justified by social considerations.
What economic objective is encouraged by favorable tax treatment of research and development expenditures?
List some tax provisions that encourage particular industries.
In terms of asset acquisitions, what tax provisions can Congress use to control the economy?

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