0:6-54 The following facts pertain to Lifecycle Corporation: - Able owns a parcel of land (Land A) having a $30,000 FMV and6,000 adjusted basis. Baker owns an adjacent parcel of land (Land B) having a $20000 FMV and_ 2,000 adjusted basis. On January 2, 201?. Able and Baker contribute their parcels of land to newly formed Lifecycle Corporation in exchange for 60% of the corporation's stock for Able and 40% of the corporation's stock for Baker. The corporation elects a calendar tax year and the accrual method ofaccounting. - On January 21 201?. the corporation borrows $2 million and uses the loan proceeds to build a factory ($1 million), purchase equipment ($500,000), produce inventory ($450000), pay other operating expenses ($30,000), and retain working cash {$20,000}. Assume the corporation sells all inventory produced and collects on all sales immediately so that, at the end of any year. the corporation has no accounts receivable or inventory balances. - Operating results for 201iIr are as follows: Sales $964,000 Cost of goods sold 450,000 Interest paid on loan 140.000 Depreciation: Equipment 70,000 {$25,000 for E0513] Building 24,000 {$24,000 for ESCP} Operating expenses 30,000 Ofthese amounts, $250,000 is Qualied production activities income. The deduction percentage is 9%. - In 2018. Lifecycle Corporation invests $10,000 of excess cash in Macro Corporation stock (less than 20% owned] and $20,000 in taxexempt bonds. In addition, the corporation pays Able a $12,000 salary and distributes an additional 342.000 to Able and $28,000 to Baker. The corporation also makes a $100,000 principal payment on the loan. Results for 2018 are as follows: Sales $990,000 Cost of goods sold 500,000 Interest paid on loan 130,000 Depreciation: Equipment 125,000 ($50,000 for E&P) Building 25,000 Operating expenses ($25,000 for E&P) 40,000 Salary paid to Able 12,000 Dividend received on Macro Corporation stock 2,000 Short-term capital gain on sale of portion of Macro Corporation stock holdings ($4,000 - $3,000) Tax-exempt interest received 1,000 1,500 Charitable contributions 500 Of these amounts, $158,000 is qualified production activities income. The deduction percentage is 9%. . In 2019, the corporation did not pay a salary to Able and made no distributions to the shareholders. The corporation, however, made a $30,000 principal payment on the loan.. Results for 2019 are as follows: Sales Cost of goods sold $500,000 280,000 Interest paid on loan 125,000 Depreciation: Equipment 90,000 Building 25,000 ($50,000 for E&P) Operating expenses 60,000 ($25,000 for E&P) Long-term capital gain on sale of remain- ing Macro Corporation stock ($9,000 - $7,000) 2,000 Long-term capital gain on sale of tax-exempt bond ($21,000 - $20,000) 1,000 Of these amounts, qualified production activities income is zero (because it is negative). - On January 2, 2020, the corporation receives a refund for the 2019 NOL carried back to 2017. When carrying back the NOL, remember to recalculate the U.S. production activities deduction in the carryback year because of the reduced taxable income resulting from carryback. In addition, the corporation sells its assets, pays taxes on the gain, and pays off the $1.87 million remaining debt.Sales Price Tax Adj. Basis* EGP Adj. Basis Equipment $ 250,000 $ 215,000 $ 375,000 Building 986,000 926,000 926,000 Land A 80,000 16,000 16,000 Land B 50,000 20,000 20,000 Total $1,366,000 $1,177,000 $1,337,000 "NOTE: Technically, the equipment should be depreciated for 1/2 year in the year of disposition, and the building should be depreciated for 1/2 month (because of the January disposition). However, for simplicity, the above calculations ignore depreciation deductions in the disposition year, which creates an offsetting overstatement of adjusted basis. Section 362(e)(2) limits Land B basis to the FMV. Immediately after these transactions, the corporation makes a liquidating distribution of the remaining cash to Able and Baker. The remaining cash is $348,639, which the corporation distributes in proportion to the shareholders' ownership (60% and 40%). Assume that the shareholder's long-term capital gains will be taxed in 2020 at 23.8% (the 20% maximum capital gains rate plus the 3.8% rate on net investment income)