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south western federal taxation

Questions and Answers of South Western Federal Taxation

LO.4, 6, 7 In 2002, Gordon purchased real estate for $900,000 and listed title to the property as “Gordon and Fawn, joint tenants with right of survivorship.” Gordon predeceases Fawn in 2012 when
LO.6, 7 In 2000, Alan purchases a commercial single premium annuity. Under the terms of the policy, Alan is to receive $120,000 annually for life. If Alan predeceases his wife, Katelyn, she is to
LO.4, 6 Before her death in early 2012, Katie made the following transfers.• In 2008, purchased stock in Green Corporation for $200,000 listing title as follows:“Katie, payable on proof of death
LO.6 Assume the same facts as in Problem 45 with the following modifications.• Mitch is killed by a rock slide while mountain climbing in November 2012, and the insurer pays Alicia’s estate
The $300,000 loan was made to Brad in late 2007, and he used the money to create a very successful business. The note was forgiven by Kenneth in his will. What are the estate tax consequences of
LO.6, 7 At the time of his death on September 2, 2012, Kenneth owned the following assets.Fair Market Value City of Boston bonds $2,500,000 Stock in Brown Corporation 900,000 Promissory note issued
LO.4 Jesse dies intestate (i.e., without a will) in May 2011. Jesse’s major asset is a tract of land. Under applicable state law, Jesse’s property will pass to Lorena, who is his only child. In
LO.4 Carl made the following transfers during 2012.• Transferred $900,000 in cash and securities to a revocable trust, life estate to himself and remainder interest to his three adult children by a
LO.3 In each of the following independent situations, indicate whether the alternate valuation date can be elected. Explain why or why not. Assume that all deaths occur in 2012.Value of Gross Estate
LO.1, 3, 6, 7 Arlene’s estate includes the following assets.Fair Market Value Date of Death Six Months Later Apartment building $4,400,000 $4,380,000 Stock in Red Corporation 1,200,000 1,300,000
LO.4, 6 Using the legend provided, classify each of the following transactions.Legend NT = No transfer tax imposed GT = Subject to the Federal gift tax ET = Subject to the Federal estate taxa. Hal
LO.7 Steve and Pam are husband and wife. Steve predeceases Pam. Under Steve’s will, all of his uncommitted estate passes to the children of his first marriage. Comment on any marital deduction
LO.7 Troy predeceases his wife, Nell. Under his will, his estate is placed in trust, life estate to Nell, remainder to his children. Regarding any marital deduction allowed to Troy’s estate,
LO.6 With regard to “life insurance,” comment on the following.a. What the term includes (i.e., types of policies).b. The meaning of “incidents of ownership.”c. When a gift occurs upon
LO.6 Discuss the estate tax treatment of each of the following. In all cases, assume that Rachel is the decedent and that she died on July 5, 2012.a. State income tax refund for 2011 received on July
LO.6 Discuss the estate tax treatment of each of the following. In all cases, assume that Mike is the decedent and that he died on July 5, 2012.a. Interest on State of South Dakota bonds paid on
LO.3, 6, 8 Distinguish between the following.a. The gross estate and the taxable estate.b. The taxable estate and the tax base.c. The gross estate and the probate estate.
LO.5 In connection with the filing of a Federal gift tax return, comment on the following.a. No Federal gift tax is due.b. The gift is between spouses.c. The § 2513 election to split gifts is to be
LO.5 Regarding the gift-splitting provision of § 2513, comment on the following.a. What it was designed to accomplish.b. The treatment of any taxable gifts previously made by the nonowner spouse.c.
LO.4 Qualified tuition programs under § 529 enjoy significant tax advantages. Describe these advantages with regard to the Federal:a. Income tax.b. Gift tax.c. Estate tax.
At that point, the trust terminates and the principal (corpus) is distributed to the son. What annual gift tax exclusions are allowed, if any, on the creation of the trust?
LO.4 The Randalls have a married son and four grandchildren (ages 15, 17, 18, and 19). They establish a trust under which the income is to be paid annually to the grandchildren until the youngest
LO.4 Addison provides all of the support of her dependent father, Walter, who lives with her. Because Walter is very proud and wants to appear independent, Addison gives him the money to pay his
LO.4 Gus (age 84) and Belle (age 18) are married in early 2012. Late in 2012, Belle confronts Gus about his failure to transfer to her the considerable amount of property he previously promised. Gus
LO.3 Hugo dies in 2012, leaving a large estate. Among other provisions in his will are charitable and marital bequests. When Hugo’s executor elects the alternate valuation date, it has the effect
LO.3 As to the alternate valuation date of § 2032, comment on the following.a. The justification for the election.b. The main heir prefers the date of death value.c. An estate asset is distributed
LO.3 Regarding the formula for the Federal estate tax (see Figure 18.2 in the text), comment on the following.a. The gross estate may include property interests not owned by the decedent at the time
LO.2, 4, 5 Regarding the formula for the Federal gift tax (see Figure 18.1 in the text), comment on the following observations.a. Only post-1976 taxable gifts must be considered in determining the
LO.2 A new out-of-state client, Robert Ball, has asked you to prepare a Form 709 for a large gift he made in 2011. When you request copies of any prior gift tax returns he may have filed, he
LO.1 In what manner does an inheritance tax differ from an estate tax?
LO.1 Carlos, a citizen and resident of Chile, would like to buy stock in General Electric and make gifts of the shares to his children. Will the Federal gift tax pose a problem for him? Explain.
LO.1 Why can the unified transfer tax be categorized as an excise tax? In this regard, how does it differ from an income tax?
LO.1 Describe how a corporate entity might be restructured to enable the resulting group to qualify for a consolidation election. (Hint: Recall the corporate changes discussed in Chapter 7, such as
LO.2 Only a few sections in the Internal Revenue Code are devoted to the rules that control how consolidated income tax returns are filed. In contrast, the Regulations that explain and clarify those
LO.3, 4, 5 List the structural and compliance requirements under Federal income tax law that must be met before a parent and its affiliates are allowed to file on a consolidated basis. Consider only
LO.3, 10 Continue with the facts presented in Question
In addition, assume that Brown Corporation has a history of making large, continuous charitable contributions in its community. In the next three years, Brown’s largest investment assets will be
LO.3, 5 Indicate whether each of the following would make good partners for electing to file a consolidated return for Federal income tax purposes. Explain why or why not.a. SubCo cannot claim its
LO.4 Provide the information required to complete the following chart.Group of Entities Eligible to Join a Consolidated Group?Why or Why Not Eligible?a. Lima City Choral Artists ___________
LO.5 The Pelican Group cannot decide whether to start to file on a consolidated basis for Federal income tax purposes, effective for its tax year beginning January 1, 2013. Its computational study of
LO.5 The Penguin Group cannot decide whether to cease to file on a consolidated basis for Federal income tax purposes, effective for its tax year beginning January 1, 2013.Its computational study of
LO.5 Lavender and Azure began to file a calendar year consolidated return for tax year 2010. The group never extends the due date of its tax returns. Lavender acquires all of the stock of Rose on
LO.5 The consolidated tax liability for most affiliated groups is assigned among the parent and its subsidiaries—each entity is responsible for “its share” of the tax. The Regulations allow
LO.5 Huge Corporation and its wholly owned subsidiary, Whit Corporation, file Federal tax returns on a separate basis. Huge manufactures postage meters, and Whit provides mail-order services to a
LO.6 An excess loss account is used by a parent in computing its basis in the stock it holds in a subsidiary so that the stock basis never can be less than zero. Explain.
LO.6 Your client, MegaCorp, has asked for your assistance in filing the current-year consolidated Federal income tax return. MegaCorp provides you with the following items for the parent and each of
LO.6 Outline the process by which a consolidated group computes its Federal taxable income. Your description should match the approach taken in Figure 8.1.
LO.7 Parent Corporation and its wholly owned subsidiary, Child Corporation, have filed Federal income tax returns on a consolidated basis since Child was incorporated many years ago. Both entities
LO.7 In December 2012, Child Corporation prepays Parent Corporation $750,000 for its 2013 use of a common database system. Child is a wholly owned subsidiary of Parent, with whom Child has filed a
LO.8 Tiny Corporation brought a $4 million NOL carryforward into the Mucho Group of corporations that elected to file on a consolidated basis as of the beginning of this year. Combined results for
LO.8 Parent and Child Corporations have filed on a consolidated basis since the mid-1970s. Junior Corporation was formed at the beginning of this year through an asset split-off from Parent.
LO.8 Put owned all of the stock of Call when the two corporations were formed a decade ago. The group immediately elected to file on a consolidated basis. Now Call’s management team has purchased
LO.9 The computational method of Figure 8.1 indicates that consolidated taxable income includes a number of group items where limitations are applied on an aggregate basis. In no more than two
LO.9, 10 Intercompany transactions of a consolidated group can be subject to a“matching rule" and an “acceleration rule.”a. Define both terms.b. As a tax planner structuring an intercompany
LO.9 Use a timeline to diagram the gain/loss recognition by this affiliated group.• Year 1: SubCo purchases an asset for $400.• Year 3: SubCo sells the asset to Parent for $300.• Year 4: Parent
LO.9, 10 Junior was a member of the Rice consolidated group for many years. It left the group effective for the 2012 tax year. In 2010, Junior sold a plot of land to Parent at a $600,000 realized
LO.10 At a meeting of local tax executives last week, you heard several of the tax professionals complaining about the sizable costs that they incur in meeting and maintaining an election to file
LO.10 Findlay Corporation was formed by three engineers. Sally brings entrepreneurial skills to the ownership group, while Patricia is the “idea person.” Lois makes prototypes and works with
LO.3 Giant Corporation owns all of the stock of PebbleCo, so they constitute a Federal affiliated group and a parent-subsidiary controlled group. By completing the following chart, delineate for
LO.3 Giant Corporation owns all of the stock of PebbleCo, so they constitute a Federal affiliated group and a parent-subsidiary controlled group. By completing the following chart, delineate for
LO.3, 4 Apply the controlled and affiliated group rules to determine whether a parent-subsidiary controlled group or an affiliated group exists in each of the following independent situations. Circle
LO.5 Parent and Sub Corporations file their Federal income tax returns on a consolidated basis. Parent, a calendar year taxpayer, owns all of the outstanding stock of Sub.The consolidation election
LO.5 The Parent consolidated group reports the following results for the tax year. Dollar amounts are listed in millions.Parent SubOne SubTwo SubThree Consolidated Ordinary income $700 $200 $140
LO.5 Assume the same facts as in Problem 40 except that the group members have adopted the relative tax liability tax-sharing method.
LO.5 ParentCo owns all of the stock of DaughterCo, and the group files its Federal income tax returns on a consolidated basis. Both taxpayers are subject to the AMT this year due to active operations
LO.6 Senior, Ltd., acquires all of the stock of JuniorCo for $30 million at the beginning of 2011. The group immediately elects to file income tax returns on a consolidated basis.Senior’s
LO.6 WhaleCo acquired all of the common stock of MinnowCo early in year 1 for$900,000, and MinnowCo immediately elected to join WhaleCo’s consolidated Federal income tax return. As part of the
LO.6 Continue with the facts of Problem 44.WhaleCo has determined that it will sell all of its MinnowCo stock at the end of year 3 for $250,000. Taking into account the rules regarding excess loss
LO.7 Compute consolidated taxable income for the calendar year Blue Group, which elected consolidated status immediately upon creation of the two member corporations in January 2011. All recognized
LO.7, 8 Determine consolidated taxable income for the calendar year Yeti Group, which elected consolidated status immediately upon the creation of the two member corporations on January 1, 2011. All
LO.8 Cougar, Jaguar, and Ocelot Corporations have filed on a consolidated, calendar year basis for many years. At the beginning of the 2012 tax year, the group elects to deconsolidate.The group’s
LO.8 The Giant consolidated group includes SubTwo, which was acquired as part of a§ 382 ownership change. SubTwo brought with it to the group a large NOL carryforward,$3 million of which is
LO.8 Child Corporation joined the Thrust consolidated group in 2011. At the time it joined the group, Child held a $2 million NOL carryforward. On a consolidated basis, the members of Thrust
LO.1 “U.S. persons are taxed on their worldwide income.” Explain.
LO.1, 5 Liang, a U.S. citizen, owns 100% of ForCo, a foreign corporation not engaged in a U.S. trade or business. Is Liang subject to any U.S. income tax on her dealings with ForCo? Explain.
LO.2 Kelly, a U.S. citizen, earns interest income that is sourced in Germany. How could a U.S. tax treaty with Germany reduce Kelly’s taxes on the interest?
LO.3 When is dividend income paid by a non-U.S. entity to a U.S. investor not foreignsource income? Be specific.
LO.3 Write a memo outlining the issues that arise when attempting to source income that is earned from Internet-based activities.
LO.3 “The IRS can use §482 to overturn all of the international tax planning that our company is doing.” Explain.
LO.4 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?
LO.4 When dealing with the rules concerning gain and loss from foreign currency transactions, the taxpayer must identify its qualified business units (QBUs). What is a QBU? How many QBUs can a
LO.4 Heinrik is a business organized in the United States, and its functional currency is the U.S. dollar. On a January sale to a customer in Finland, the closing price for the goods is expressed in
LO.5 What are the important concepts to be considered when U.S. assets are transferred outside the country to be used in starting a new business?
LO.5 Write a memo to a U.S. client explaining why some of the profit generated from a non-U.S. subsidiary still is included in its U.S. taxable income.
LO.5 Summarize the ownership rules that apply in determining whether a non-U.S.entity is a controlled foreign corporation (CFC) under the U.S. Federal income tax rules.
LO.5 QuinnCo could not claim all of the income taxes it paid to Japan as a foreign tax credit (FTC) this year. What computational limit probably kept QuinnCo from taking its full FTC?
LO.5 SwitchCo, a U.S. business, paid income taxes to France relative to profitable sales it made in that country. Can it claim a deduction for these taxes in computing U.S. taxable income? A tax
LO.5 Klein, a domestic corporation, receives a $10,000 dividend from ForCo, a wholly owned foreign corporation. The deemed-paid FTC associated with this dividend is $3,000.What is the total gross
LO.5 Working with the FTC may involve “baskets” of foreign-source income and deductions. Explain this term.
LO.6 In general terms, how is a non-U.S. person taxed on his or her U.S. business income? Investment income? Ignore the effects of tax treaties in your answer.
LO.6 Write a memo on the difference between “inbound” and “outbound” activities in the context of U.S. taxation of international income.
LO.1, 3, 5 If a U.S. taxpayer is subject to U.S. income tax on profits earned outside the United States and such profits also are subject to income tax in the foreign jurisdiction, how does the U.S.
LO.4, 5 RedCo, a domestic corporation, incorporates GreenCo, a new wholly owned entity in Germany. Under both German and U.S. legal principles, this entity is a corporation.RedCo faces a 35% U.S. tax
LO.3 Madison, a U.S. resident, received the following income items for the current tax year. Identify the source of each income item as either U.S. or foreign.a. $3,000 dividend from U.S. Flower
LO.3 Gloria Wang, an NRA, is a professional golfer. She played in seven tournaments in the United States in the current year and earned $200,000 in prizes from these tournaments.She deposited the
LO.3 In 2001, Xio and Xandra each invest $300,000 to create Xava Corporation. Xava develops and manufactures rock climbing and bungee jumping equipment. The business has become very profitable (it
LO.5 Shepherd Corporation is considering acquiring RentCo by exchanging its stock(value of $10 per share) for RentCo’s only asset, a tract of land (adjusted basis of$150,000 and no liability). The
LO.5 On December 31, 2011, Alpha Corporation, valued at $10 million, acquired BetaCo when BetaCo was valued at $5 million. BetaCo holds a capital loss carryforward of $220,000 and excess business
LO.5 Zeta Corporation is interested in acquiring Tau Corporation through a “Type A”reorganization on January 2 of the current year. Zeta is valued at $50 million and generates taxable income of
LO.5 Global Corporation is negotiating a merger (“Type A” reorganization) with State Corporation, to be effective on December 31 of the current year. Global is a profitable corporation with $10

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