1. What is Section 1244 stock? What are its advantages?

2. Cathy Crafts grants Dan Deputy a franchise to sell cards and gifts. Dan pays Cathy a fee of $1,000 per month plus a percentage of the monthly profits. Dan must purchase his supplies from Cathy and Cathy retains the right to terminate Dan's franchise. What are the tax consequences of this arrangement to Cathy and Dan?

3. On April 22, 2021, Al Aikens, a calendar year taxpayer, purchased stock in Webster Corp. for $15,000. What is the nature of Al's loss if Webster Corp. files for bankruptcy and Al's stock becomes worthless on the following dates?

December 20, 2021

January 17, 2022

September 19, 2022

4. Which of the following are Section 1231 assets? Explain. Assume all the items have been held long-term.

Machinery used in the business

Personal home

Factory building

Land held as an investment

Land used in a business

Shares of stock in Jones Corporation

Inventory

Musical composition held by the composer

5. Indicate whether the following items are Section 1245 or Section 1250 property or, if neither, indicate what type of property they are considered to be (e.g., capital asset, Section 1231 asset). (Remember that Section 1245 and Section 1250 properties are sub-categories of depreciable Section 1231 property.) Assume all the items have been held long-term.

Equipment used in the business

Personal automobile

Truck used in the business

Escalator used in the business

Inventory

Residential rental housing

Nonresidential real property depreciated under the straight-line method

Leasehold of Section 1245 property