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business
south western federal taxation

Questions and Answers of South Western Federal Taxation

Describe how the IRS monitors and regulates the transfer pricing activities of U.S. businesses. Find at least two initiatives or devices the IRS uses in this regard. Send your results in a one-page
Continue with the facts of Problem 54. What are the Federal income tax withholding requirements with respect to Martinho’s sale? Who pays the withheld amount to the U.S. Treasury?Data From Problem
Partin, Inc., a foreign subsidiary of Jones, Inc., a U.S. corporation, reports pretax income of 200,000 euros for the current year. Partin accrues 60,000 euros in foreign taxes on this income. The
Honk, Inc., a U.S. corporation, purchases weight-lifting equipment for resale from HiDisu, a Japanese corporation, for 60 million yen. On the date of purchase, 80 yen is equal to $1 U.S. (¥80:$1).
Joy Marcus owns several income-producing assets, including a stock portfolio and a small services proprietorship. She wants to start a new corporation in the country Molto, where the income tax rates
Weinke is a business organized in Austria, where the local currency is the euro. Nevertheless, Weinke’s U.S. branch uses the U.S. dollar as its functional currency. How can this be?
Many states offer a tax credit for expenditures made in-state for new manufacturing, communications, agricultural, and energy-saving equipment. For your state and one of its neighbors, summarize in a
Identify three states considered to be in the same economic region as your own. For each of the three states, answer the following questions. Answers to most can be found at www.taxadmin.org.• What
Read the “tax footnote” of five publicly traded U.S. corporations. Find the effective state/local income tax rates of each. Create a PowerPoint presentation (maximum of five slides) for your
For your state and one of its neighbors, find the following sales/use tax rules. Place your data in a chart and e-mail your findings to your professor.a. What are the requirements for the
Send an e-mail to the secretary of revenue for your home state, proposing adoption of at least two of the following provisions that do not currently exist.a. Exempt computer and communications
Use Figure 24.1 to provide the required information for Warbler Corporation, whose Federal taxable income totals $10 million.Warbler apportions 70% of its business income to State C. Warbler
Perch, Inc., an exempt organization, has unrelated business taxable income of $4 million.a. Calculate Perch’s UBIT.b. Prepare an outline of a presentation you are going to give to the new members
The Living Museum is a tax-exempt organization. Dolphin Corporation, a wholly owned subsidiary of the Living Museum, sells boats. Dolphin remits all of its earnings each year to its parent. Is
Which of the following organizations qualify for exempt status?a. Tulane University (a private university).b. Virginia Qualified Tuition Program.c. Red Cross.d. Disneyland.e. Ford Foundation.f.
Make a graph of the growth in the number of S elections since 1980, using increments of no more than five years. On the same graph, show the maximum Federal income tax rates for those years as they
During 2014, Whindy Corporation, an S corporation, reports a recognized built-in gain of $80,000 and a recognized built-in loss of $10,000. Whindy holds an $8,000 unexpired NOL carryforward from a C
Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Both shareholders have a $400,000 stock basis as of January 1, 2014. At the
Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2014. During 2015, Lonergan, Inc., distributes $140,000 to its
Indicate whether each of the following items is used in computing the nonseparately stated income or loss for an S corporation.a. Amortization of organizational expenditures.b. Dividends received
Caleb Samford calls you and says that his two-person S corporation was involuntarily terminated in February 2013. He asks you if they can make a new S election now, in November 2014. Draft a memo for
The three shareholders of an S corporation have binding compensation contracts with the corporation, with one of the shareholders having excessive payments (resulting in a constructive dividend).
Which of the following are requirements to be an S corporation?a. Limited to a maximum of 100 shareholders.b. Has no resident alien shareholders.c. Has only one class of stock.d. May have no straight
Which of these taxes applies to an S corporation?a. Alternative minimum tax.b. Accumulated earnings tax.c. Personal holding company tax.d. Michigan state corporate income tax.
Download a copy of the legislation with which your state began to allow the formation of limited liability companies. What types of business activities can an LLC conduct in your state?
Use the search feature on your favorite business news site on the Web (e.g., CNN, Bloomberg, or Fox News) and search for news on partnerships, LLCs, or limited partnerships. What entities did you
In each of the following independent cases in which the partnership owns no hot assets, indicate:• Whether the partner recognizes gain or loss.• Whether the partnership recognizes gain or
Assume the same facts as in Problem 55. On the first day of the third tax year, the partnership sold the equipment for $150,000. The gain on the sale is allocated equally to the partners. The
Assume the same facts as in Problem 53. Assume that Burgundy, Inc.’s annual guaranteed payment is increased to $120,000 starting on January 1, 2015, and the LLC’s taxable income for 2014 and 2015
Burgundy, Inc., and Violet are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed payment
Assume the same facts as in Problem 50, except that Suz-Anna was formed as an LLC instead of a general partnership.a. How would Suz-Anna’s ending liabilities be treated?b. How would Suzy’s basis
Assume the same facts as in Problem 50 and assume that Suz-Anna prepares the capital account rollforward on the partners’ Schedules K–1 on a tax basis.a. What is Suzy’s capital account balance
How would your answers in Problem 48 change if partnership revenues were $100,000 instead of $150,000?Data From Problem 48:The KL Partnership is owned equally by Kayla and Lisa. Kayla’s basis is
The KL Partnership is owned equally by Kayla and Lisa. Kayla’s basis is $20,000 at the beginning of the tax year. Lisa’s basis is $16,000 at the beginning of the year. KL reported the following
Assume the same facts as in Problem 45. What income, gains, losses, and deductions does Amy report on her income tax return? Based on the information provided, what other calculations is she required
Amy and Mitchell are equal partners in the accrual basis AM Partnership. At the beginning of the current year, Amy’s capital account has a balance of $300,000, and the partnership has recourse
Assume the same facts as in Problem 43, with the following exceptions:• Reece purchased the land five years ago for $120,000. Its fair market value was $90,000 when it was contributed to the
Phoebe and Parker are equal members in Phoenix Investors, LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions.Phoenix then purchased a parcel of
On July 1 of the current year, the R & R Partnership (an LLLP) was formed to operate a bed-and-breakfast. The partnership paid $3,000 in legal fees for drafting the partnership agreement and
Continue with the facts presented in Problem 35.a. Construct a balance sheet for SD LLC assuming that Drew’s services are completed immediately after forming SD. The balance sheet should reflect
Sam and Drew are equal partners in SD LLC formed on June 1 of the current year. Sam contributed land that he inherited from his uncle in 2006. Sam’s uncle purchased the land in 1981 for $30,000.
Assume the same facts as in Problem 33, except that Mike sells his land to a third party for $100,000 and then contributes that cash to the partnership. The partnership locates equivalent land that
What is a guaranteed payment? How is it reported on Form 1065 and its various schedules? How is it reported to and by the partner?Form 1065:
While the requirements for a § 332 parent-subsidiary liquidation are fairly straightforward, some planning and reporting issues must be addressed to ensure the proper outcome. Using the Internet as
Assume in Problem 23 that the land had a fair market value of $630,000 on the date of its transfer to the corporation. On the date of the liquidation, the land’s fair market value has decreased to
Why do the tax laws often dictate the legal form of corporate reorganizations? Be specific.
Buy-sell agreements are frequently used to address the disposition of a retiring or deceased shareholder’s stock in a closely held corporation. Using the Internet as your sole research source,
Your firm has a new individual client, Carla Navarro, who has been assigned to you for preparation of the current year’s tax return. Upon review of Carla’s tax returns from prior years, you
Kenny Merinoff and his son, John, own all of the outstanding stock of Flamingo Corporation. Both John and Kenny are officers in the corporation and, together with John’s uncle, Ira, comprise the
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2014, its second year of operation.Sparrow uses the LIFO inventory method, and its LIFO recapture
On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is payable in five installments, with the first payment due
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from
How do the § 318 stock attribution rules apply to partnerships and their partners?
Owners and financiers of businesses often have reasons to structure their investments as either debt or equity. Locate the July 11, 2011, report prepared by the Staff of the Joint Committee on
Emily Patrick (36 Paradise Road, Northampton, MA 01060) formed Teal Corporation a number of years ago with an investment of $200,000 cash, for which she received $20,000 in stock and $180,000 in
Jane, Jon, and Clyde incorporate their respective businesses and form Starling Corporation. On March 1 of the current year, Jane exchanges her property (basis of $50,000 and value of $150,000) for
Sarah incorporates her small business but does not transfer the machinery and equipment the business uses to the corporation. Subsequently, the machinery and equipment are leased to the corporation
In determining a corporation’s debt-equity ratio, should the book value or the fair market value of the assets be used? Explain.
Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2011 has been land surveying services. In Tern’s state of
Using the facts of Problem 49, determine the 2014 end-of-year balance in Prance’s deferred tax asset and deferred tax liability balance sheet accounts.Data From Problem 49:Prance, Inc., earns
Your client sold a capital asset in June 2012 for which payment is to be made in June 2014. He did not charge interest on the deferred payment, and you need to make the imputed interest computations.
Kay, who is not a dealer, sold an apartment house to Polly during the current year (2014). The closing statement for the sale is as follows:
In December 2014, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for her business for the 2015 calendar year. How much of the premiums can Nell, Inc., deduct in 2014?
Go to a tax blog and post a comment on one of the following items relative to individuals who are subject to the AMT.a. Interest deductions on vacation homes.b. Personal and dependency exemptions.c.
Locate a current proposal to modify the structure or scope of the Federal AMT on individuals. In an e-mail to your instructor:a. Describe the proposal.b. Indicate the entity making the proposal.c.
Jacob M. and Jane R. Brewster live at 1802 College Avenue, Carmel, IN 46032. Jacob is age 48, and Jane is age 37. They are married and file a joint return for 2014. The Brewsters have two dependent
Robert A. Kliesh, age 41, is single and has no dependents. Robert’s Social Security number is 111-11-1111. His address is 201 Front Street, Missoula, MT 59812. He is independently wealthy as a
Aqua, Inc., a calendar year corporation, records the following gross receipts and taxable income for 2011–2014. Aqua’s first year of operations was 2011. Is Aqua exempt from AMT in any of its
Pat, who is age 66 and single with no dependents, received a salary of $90,000. She reports interest income of $1,000, dividend income of $5,000, gambling winnings of $4,000, and interest income from
Calculate the 2014 AMT for the following cases. The taxpayer reports regular taxable income of $450,000 and does not claim any tax credits.
Alex owns a mineral deposit that qualifies for a 15% statutory depletion rate. Under what circumstances will the depletion deduction for regular income tax and AMT purposes differ?
Identify which of the following are AMT preferences.a. Exclusion for qualified employee discount provided by employer.b. Exclusion to employee on the employer’s contribution to the employee’s
Identify which of the following are AMT preferences.a. Seven percent of the exclusion associated with gains on the sale of certain small business stock.b. Exclusion on the receipt of property by gift
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Justin Stone was an employee of DataCare Services, Inc. His salary was $45,000 through November 10, 2013, when he was laid off. He received $7,000 of unemployment compensation from November 11, 2013,
Ashley Panda lives at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security number is 123-45-6789. Ashley is single and has a 20-year-old son, Bill. His Social Security number is 111-11-1111.
Carla was the owner of vacant land that she was holding for investment. She paid $1 million for the land in 2012. Raymond was an investor in vacant land. He thought Carla’s land might be the site
Desiree contributes to her wholly owned corporation some tangible personal property that she had used in her sole proprietorship business and depreciated. At the date of the contribution, the
Thomas receives tangible personal property as an inheritance from a decedent who died in 2014. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the
Nonresidential real estate leasehold improvements are sold at a loss. In what circumstances would the loss be subject to § 1250 depreciation recapture?
A taxpayer owns depreciable business real property held for the short-term holding period. What would have to be true for the real property to generate a § 1231 loss when it is sold?
An individual taxpayer had a net § 1231 loss in 2014. Could any of this loss be treated as a long-term capital loss? Why or why not?
Tony receives $58,000 from a real estate developer for an option to purchase land Tony is holding for homesite development. Fourteen months later, the option expires unexercised. How is the $58,000
Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1111. Devon does not want $3 to go to the Presidential Election Campaign
Alton Newman, age 67, is married and files a joint return with his wife, Clair, age 65. Alton and Clair are both retired, and during 2013, they received Social Security benefits of $10,000. Alton’s
Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2014, she exchanges it with Lisa Martin (an unrelated party) for
When does the holding period begin for replacement property acquired in an involuntary conversion? For property received in a like-kind exchange?
Find at least two news stories or government reports that document the incentive effects of any of the Federal tax law’s renewable energy credits (biodiesel/ alternative fuels, solar, wind,
The IRS makes available a web-based tool to help taxpayers determine whether they are eligible for the earned income credit. Locate this tool at the IRS website; then apply the facts related to at
Ashby and Curtis, a young professional couple, have a 2-year-old son, Jason. Curtis works full-time as an electrical engineer, but Ashby has not worked outside the home since Jason was born. As Jason
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111).
Bernadette, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing
Paul and Karen are married, and both are employed (Paul earned $44,000 and Karen earned $9,000). Paul and Karen have two dependent children, both under the age of 13. Paul and Karen pay $3,800 to
Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2013, good news comes their way and an adoption seems imminent. They pay qualified
Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom’s research-credit
Oak Corporation holds the following general business credit carryovers.2010
Charles generated a tentative general business credit of $42,000 for the current year. His net regular tax liability before the general business credit is $107,000, and his tentative minimum tax is
Can the earned income credit be characterized as a form of negative income tax? Why or why not?
In a recent Tax Court decision, a taxpayer argued that he met the 750-hour requirement for materially participating in his rental real estate activities. The taxpayer, James Moss, asserted that
Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities and is in the 28% tax bracket. She has $12,000 of losses from Activity A,

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