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south western federal taxation

Questions and Answers of South Western Federal Taxation

Bob died in year 3. His gross estate consisted of assets with a fair market value of $13,500,000. In his will, Bob leaves $1,000,000 to his wife, $500,000 to his only daughter, and $250,000 to his
Which of the following statements about the estate tax is not correct?a. The estate tax return, Form 706, is due nine months after the date of death.b. The alternate valuation date for an estate, if
Larry plans to gift his daughter $25,000 during the current taxable year. Further, provided she graduates from a four-year accredited college, he will also gift her $100,000. Which of the following
During the current year, Diane Stevens made two gifts to her son Greg. The first gift was ABC stock with a value at the date of the gift of $5,000. Diane?s basis in ABC was $2,000. The second gift,
Steve and Kay Briar, U.S. citizens, were married for the entire calendar year. During the year, Steve gave a $32,000 cash gift to his sister. The Briars made no other gifts in the year. They each
Which of the following requires filing a gift tax return if the transfer exceeds the available annual gift tax exclusion?a. Medical expenses paid directly to a physician on behalf of an individual
Fred and Amy Kehl, both U.S. citizens, are married. All of their real and personal property is owned by them as tenants by the entirety or as joint tenants with right of survivorship. The gross
How does the Federal unified transfer tax differ from an income tax?
On April 3, 2017, Luis filed his 2016 income tax return, which showed a tax due of $75,000. On June 1, 2019, he filed an amended return for 2016 that showed an additional tax of $10,000. Luis paid
Jane filed her 2018 Form 1040 on April 4, 2019. What is the date on which the applicable statute of limitations expires in each of the following independent situations?a. Jane incurred a bad debt
Kold Services Corporation estimates that its 2019 taxable income will be $500,000. Thus, it is subject to a 21% income tax rate and incurs a $105,000 liability. For each of the following independent
Maureen, a calendar year individual taxpayer, files her 2018 return on November 4, 2020. She did not obtain an extension for filing her return, and the return reflects additional income tax due of
Olivia, a calendar year taxpayer, does not file her 2019 Form 1040 until December 12, 2020. At this point, she pays the $40,000 balance due on her 2019 tax liability of $70,000. Olivia did not apply
Compute the failure to pay and failure to file penalties for John, who filed his 2019 income tax return on December 20, 2020, paying the $10,000 amount due at that time. On April 1, 2020, John
On June 15, 2018, Sheridan filed his 2017 income tax return, paying a tax of $10,500. On October 5, 2019, he filed an amended 2017 return showing an additional $6,400 of tax, which he paid with the
Marcella (a calendar year taxpayer) purchased a sculpture for $5,000. When the sculpture is worth $12,000 (as later determined by the IRS), Marcella donates it to the Peoria Museum of Art, a public
Taxpayers generally “go to jail” on tax charges only when criminal activities have been involved. Find information about the criminal tax prosecutions the Treasury undertakes. Compare data for
Which of the following is not required conduct for a preparer of an income tax return?a. Abide by the tax Code and legally minimize the taxpayer’s tax liability.b. Verify that the information the
Treasury Department Circular 230 provides guidance for doing which of the following activities?a. Practicing before the IRSb. Practicing before the U.S. Tax Courtc. Presenting before state boards of
A taxpayer presented her tax return preparer, Dev Powell, with documentation supporting income she had earned as an independent contractor. Although Powell knew that the taxpayer’s income should be
Sarah Liu is single, an attorney, and a U.S. citizen. Liu recently attended a seminar where she heard that she could give up her U.S. citizenship, move to Bermuda (where she would pay no income tax),
Night, Inc., a domestic corporation, earned $300,000 from foreign manufacturing activities on which it paid $36,000 of foreign income taxes. Night’s foreign sales income is taxed at a 50% foreign
Indeco, a U.S. C corporation, operates Grange, a sales branch in Staccato. Indeco?s U.S. corporate marginal tax rate is 21%; it is 15% for Staccato. Grange?s pretax profit for the year is $1 million.
Dunne, Inc., a U.S. corporation, earned $500,000 in total taxable income, including $50,000 in foreign-source taxable income from its branch manufacturing operations in Brazil and $20,000 in
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, 110 yen is equal to $1 U.S. (¥110:$1).
LearCo, a non-U.S. conglomerate, generates $4 billion in gross receipts annually. Its U.S. subsidiary, KingCo, accounts for $750 million of the annual gross receipts; KingCo’s average annual gross
Velocity, Inc., a foreign corporation, earned $500,000 U.S.-source income from royalties that it collected and $400,000 interest from its investment in U.S. Treasury bonds. Compute Velocity’s U.S.
By the end of 2017, Klein, a domestic corporation, had accumulated $10 million in cash from the overseas operations of its Liberia subsidiary. Klein made no distributions of these accumulated profits
Molly, Inc., a domestic corporation, generates income from the receipt of royalty income from patents that it owns. Molly wants to avoid U.S. income tax on these royalties, so it has its 100%-owned
The board of directors of White Pearl, Inc., a private foundation, consists of Charlyne, Beth, and Carlos. They vote unanimously to provide a $500,000 grant to Carlos. The grant is to be used for
Rejoice, Inc., a private foundation, has existed for 10 years. Rejoice held undistributed income of $160,000 at the end of its 2017 tax year. Of this amount, $90,000 was distributed in 2018, and
Abby Wang recently became the treasurer of First Point Church. The church has existed for three years and never has filed any documents with the IRS.a. Identify any Federal income tax reporting
Which of the following is a false statement?a. An annual information return (Form 990) stating gross income, receipts, contributions, and disbursements is required of most exempt organizations that
Unrelated business income (UBI):a. Includes unrelated income from an activity where all the work is performed by volunteers.b. Is not created if the activity results in a loss.c. Is 100% taxable on
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2019. The company generated a $74,000 NOL in 2018 and another NOL of $43,000 in 2019. Orange
Bertha, a single individual, reports taxable income of $177,500, of which $130,000 is attributable to an S corporation that provides consulting services, after paying wages of $72,000 to employees
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, 2019. During 2020, Lonergan, Inc., distributes $140,000 to its
Jack and Mary, a married couple, report taxable income of $280,000, which includes $200,000 from Jack’s solely owned S corporation. The S corporation paid wages of $100,000 to employees (which does
One of your clients is considering electing S status. Texas, Inc., is a six-year-old manufacturing company with two equal shareholders, both of whom paid $30,000 for their stock. Going into 2019,
An S corporation may deduct:a. Charitable contributions within the percentage of income limitation applicable to corporations.b. Net operating loss carryovers.c. Foreign income taxes.d. Compensation
Caleb Samford calls you and says that his two-person S corporation was involuntarily terminated in February 2018. He asks you if they can make a new S election now, in November 2019. Draft a memo for
As of January 1, year 6, Kane owned all the 100 issued shares of Manning Corp., a calendar year S corporation. On the 41st day of year 6, Kane sold 25 of the Manning shares to Rodgers. For the year
On March 5, 2019, 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
Which of the following are requirements to be an S corporation?a. Limited to an absolute maximum of 100 shareholders.b. Has no resident alien shareholders.c. Has only one class of stock.d. May have
Glow and Bro organized an S corporation and intended to have only one class of stock. They agreed that all distributions should be proportional to their stock ownership. During 2019, Bro withdrew
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
The RB LLC is owned equally by Romer and Brad. At the beginning of the year, Romer’s basis is $40,000 and Brad’s is $32,000. RB reported the following income and expenses for the current tax
Barney is a managing LLC member (treated as a general partner) of BG LLC and is allocated qualified business income (QBI) from BG of $800,000. (BG is not a “specified service trade or business.”)
Marcus and Madison are equal members of an LLC. On January 1 of the current year, to acquire a one-third interest in the entity, Nora contributed a parcel of land she had held for investment. (At
CL LLC is a manufacturing business and reported taxable income of $40,000,000 before interest expense, taxes, depreciation, and amortization (“tax EBITDA”), plus $1,500,000 of separately stated
Browne and Red, both C corporations, formed the BR Partnership on January 1, 2019. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR’s gross receipts were
The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2019, Jessica contributed land valued at $600,000 to the partnership, in exchange for a 50%
During the current tax year, Dave and Stu formed the DS LLC with Dave contributing land with a basis of $360,000 and a fair market value of $600,000 at the contribution date. At the end of the year,
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 2013. Sam’s uncle purchased the land in 1986 for $30,000.
Mike and Melissa want to form the equal MM Partnership. Melissa will contribute cash of $140,000. Mike has cash of $40,000 and land (fair market value of $100,000, adjusted basis of $136,000). Mike
Gearty’s adjusted basis in Worthington Company, a partnership, was $18,000 at the time Gearty received the following proportionate nonliquidating distributions of partnership
What is the purpose of the qualified business income deduction under § 199A? How is the deduction calculated? What information does the partnership report?
Your clients, Grayson Investments, Inc. (Ana Marks, President), and Blake Caldwell, each contributed $200,000 of cash to form the Realty Management Partnership, a limited partnership. Grayson is the
On April 23, 2019, Auk Corporation acquires 100% of the outstanding stock of Amazon Corporation (E & P of $750,000) for $1,200,000. Amazon Corporation has assets with a fair market value of
On July 20, 2018, Lilac Corporation purchased 25% of the Coffee Corporation stock outstanding. Lilac Corporation purchased an additional 40% of the stock in Coffee on March 22, 2019, and an
On January 4, 2019, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under ? 351. The shareholder?s basis, the fair market
Olinto Corp., an accrual basis calendar year C corporation, had no corporate shareholders when it liquidated in year 12. In cancellation of all their Olinto Corp. stock, each Olinto Corp. shareholder
Generally, in a direct distribution of assets to the shareholders that results in a complete corporate liquidation:a. There is no taxable event.b. The corporation recognizes no gain or loss because
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2019, its second year of operation:Taxable
ABC Corp. paid two cash distributions during year 5. The first was $42,000, and the second was $33,000. Accumulated earnings and profits (E & P) at the end of year 4 were $10,000. Current E &
ABC Corp. paid two cash distributions during year 5. The first was $42,000, and the second was $33,000. Accumulated earnings and profits (E & P) at the end of year 4 were $80,000. Current E &
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
In determining Blue Corporation’s current E & P for 2019, how should taxable income be adjusted as a result of the following transactions?a. A capital loss carryover from 2018, fully used in
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
Julio sold his corporation to a competitor, Exeter LLC, for $100,000,000. Julio incorporated his business 17 years ago by investing $500,000 plus his proprietary know-how. There have been no other
In January 2019, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of
Dove Corporation, a calendar year C corporation, had the following information for 2019:Net income per books (after-tax)........................................................$386,250Taxable
The following information for 2019 relates to Sparrow Corporation, a calendar year, accrual method taxpayer:Net income per books
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 involved
Egret Corporation, a calendar year C corporation, was formed on March 6, 2019, and opened for business on July 1, 2019. After its formation but prior to opening for business, Egret incurred the
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2019. Gull incurred the following expenses during its first year of operations (November 1,
Julieta Simms is the president and sole shareholder of Simms Corporation (a cash method, calendar year C corporation), 1121 Madison Street, Seattle, WA 98121. Julieta plans for the corporation to
In 2019, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2014. Gray is contemplating a gift of land to a qualified charity in
Joseph Thompson is president and sole shareholder of Jay Corporation (a cash method, calendar year C corporation). In December 2019, Joe asks your advice regarding a charitable contribution he plans
Heron Company purchases commercial realty on November 13, 2001, for $650,000. Straight-line depreciation of $287,492 is claimed before the property is sold on February 22, 2019, for $850,000. What
During 2019, Gorilla Corporation, a calendar year C corporation, has net shortterm capital gains of $15,000, net long-term capital losses of $105,000, and taxable income from other sources of
Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2019. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine
Aqua Corporation purchases nonresidential real property on May 8, 2016, for $1,000,000. Straight-line cost recovery is taken in the amount of $89,765 before the property is sold on November 27, 2019,
Parent Corp. owns 15% of Sub Corp. Parent has gross income of $43,000 and allowable deductions of $40,000 before considering any dividends received deduction (DRD). Included in the $43,000 gross
Gold Corporation, a calendar year C corporation, was formed in 2012 and has been profitable until the current year. In 2019, Gold incurs a net operating loss. Identify the issues that Gold
The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 27, 2019. One topic on the board’s agenda is the approval of a $25,000 gift to a
On December 27, 2019, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is
Campbell Corporation, an accrual basis calendar year corporation, had income of $450,000 for financial statement purposes in year 7. This amount included book depreciation of $50,000. The related tax
Tapper Corp., an accrual basis calendar year corporation, was organized on January 2, year 1. During year 1, revenue was exclusively from sales proceeds and interest income. The following information
In year 6, Garland Corp. contributed $40,000 to a qualified charitable organization. Garland’s year 6 taxable income before the deduction for charitable contributions was $410,000. Included in that
Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2016 has been land surveying services. In Tern’s state of
On March 31, 2017, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship, to be completed within three years. Big Boats estimated the total cost
The Wren Construction Company reports its income by the completed contract method. At the end of 2019, the company completed a contract to construct a building at a total cost of $800,000. The
George sold land to an unrelated party in 2018. His basis in the land was $45,000, and the selling price was $120,000—$30,000 payable at closing and $30,000 (plus 10% interest) due January 1, 2019,
On December 30, 2018, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2020,
On June 30, 2019, Kelly sold property for $240,000 cash and a $960,000 note due on September 30, 2020. The note will also pay 6% interest, which is slightly higher than the Federal rate. Kelly’s
How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer?a. The company guarantees its products for six months. At the end of 2019,
Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2019), the company hires you to convert the cash receipts and
Compute Mary’s income or deductions for 2019 using (1) the cash basis and (2) the accrual basis for each of the following.a. In May 2019, Mary paid a license fee of $1,200 for the period June 1,
Gold, Inc., is an accrual basis taxpayer. In 2019, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000

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