Chapter 14 Questions Tax Planning Cases

In each of the following problems, identify the tax issue(s) posed by the facts presented.

Determine the possible tax consequences of each issue that you identify.

57. Lydia owns 75% of Flower Farms, a partnership. She also owns land that she leases

to Flower Farms for $6,000 per month.

58. Michael buys a piece of property from JFK Partnership for $60,000 that has a

$70,000 basis. Michael owns 80% of JFK partnership.

59. Irene contributes land to Micro Development Partnership for a 30% interest. The

lands basis is $20,000, and it has a fair market value of $80,000. Micro reports a

net operating loss of $100,000 for the year. Irene devotes at least 12 hours a week

to managing the partnership operations.

60. Powell owns a 20% interest in Cooke Partnership. At the beginning of 2012,

Powells basis is $22,000. Cooke reports a $90,000 operating loss in 2012, and

Powell withdraws $10,000 from the partnership. Cookes 2013 operating income

is $70,000, and Powell withdraws $10,000 from the partnership.

61. Ramrod, Inc., sells a warehouse for $350,000. It purchased the warehouse 10

years ago for $250,000 and had taken $75,000 in depreciation on the building to

the date of sale.

62. Myrtle Coast Corporation has a $35,000 operating loss during the current year.

Not included in the loss is a $40,000 dividend it received from a corporation in

which it owns a 15% interest.

63. LMC, Inc., is equally owned by Larry, Maurice, and Charles. The owners are

sports agents. LMCs income consists solely of fees from the owners clients. During

the current year, LMCs net income from operations is $380,000, and it

receives $20,000 in interest income. The corporation owns an interest in a limited

partnership that generates a $24,000 loss in the current year.

64. Assume the same facts as in problem 63, except that LMC, Inc., is an electing

S corporation.

65. Kummell Corporation reports a $200,000 taxable income in the current year.

Included in the taxable income calculation are $20,000 in dividends received from

less-than-20%-owned corporations, and $30,000 in charitable contributions.

66. Milena owns a 25% interest in Davis Company, an S corporation. Her basis in the Davis

stock is $40,000. Davis reports an operating loss of $200,000 in the current year. Davis

owes Milena $25,000 on a loan she made to the company several years ago.

67. Charlene owns a 70% interest in Maupin Mopeds, which is organized as a partnership.

She wants to open another business and needs office space for it. She has

Maupin distribute a building worth $150,000 to her in lieu of her normal cash distribution.

Maupins basis in the building is $55,000. Charlenes basis in Maupin is

$80,000.

68. Ballou Corporation distributes $200,000 in cash to its shareholders during the current

year. Accumulated earnings and profits at the beginning of the year are

$45,000, and current year earnings and profits are $105,000. Buddy owns 80% of

Ballou and has a basis of $60,000 at the beginning of the year.

Thank you for your assistance