Parkview West Inc. has gross income of $50,000, consisting of $37,000 of rent receipts and $13,000 of

Question:

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, taxes, and cost recovery). $9,000 of dividends are paid to Susie and Sally, the only shareholders.

a. Is the 50 percent rental test met?

b. Is the 10 percent dividend test met?

c. Is Parkview a personal holding company?

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Step by Step Answer:

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ANSWER To determine whether Parkview West Inc meets the requirements of the rental and dividend tests and whether it qualifies as a personal holding company we need to analyze its income and ownership structure a 50 Percent Rental Test The 50 percent rental test is met if at least 50 percent of the corporations adjusted gross income for the tax year is derived from rents In this case the total gross income from rents is 37000 and the total gross income is 50000 Therefore the percentage of gross income derived from rents is 37000 50000 x 100 74 which exceeds 50 Thus the 50 percent rental test is met b 10 Percent Dividend Test The 10 percent dividend test ...View the full answer

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