i am struggling with a homework on a tax case title jack Murray Floral Inc a calendar year accrual basis corporation that operate a wholesale and retail florist business.

Murray Florals Inc. (IMF) is a calendar year, accrual basis Corporation that operates a wholesale and retail florist business. The corporation was formed in September 2007, and the shareholders made a valid Subchapter S election for MFIs first taxable year ending on December 31, 2007. Although the business generated operating losses for its first three tax years, the shareholders are confident that the longterm prospects for the business are excellent.

Jack Murray owns 100 percent (300 shares) of the outstanding voting stock in MFI. Nine individuals investors who are Murrays friends and business associates own another 700 shares of nonvoting common stock. In 2007, Murray borrowed $50,000 from a local bank, using a Certificate of Deposit with the bank as collateral for the loan. He used $30,000 of the loan proceeds to purchase his MFI stock. He loaned the remaining $20,000 to MFI and received a property drafted note from the corporation that stipulated a nine percent annual interest rate and provided for repayment of the principal beginning in 2011. To date, Murray has made no payment against the principal of his bank loan; on December 31, 2010, he paid the $4,750 interest that accrued on the debt that year.

From 2007 through 2009, MFIs operating losses of $62,000 were allocated properly to Jack Murray. There were no other items of separately computed income, gain, or loss during these years. As of the beginning of 2010, Murrays basis in his MFI stock and MFI debt were reduced to zero because of his deduction of $50,000 of these losses. The $12,000 nondeductible portion of the allocated losses is a carryforward into 2011.

Jack Murray has served as President of MFI since its incorporation drawing $150,000. This amount of salary may be reasonable considering the time and effort he has devoted to the corporate business. MFI generated taxable operating income of $257, 453 during it 2010 taxable year in computing taxable income, the corporation deducted $1800 of accrued interest expense on the $20,000 debt owed to Jack Murray. MFI made no cash payment of interest to jack during 2010; the 2010 accrued interest was paid in January 2011. The corporation made no cash or property distributions to its shareholders during 2010.

On September 15, 2010, MFI made the first $10,000 principal repayment on its note held by Jack Murray. Jack promptly uses the $10,000 to buy shares in a growth mutual fund. In the early month of 2011, Murray discovers that one of his co-investors in MFI, Lynn Bertram, had made a completed gift of 75 shares of MFI stock into an irrevocable trust. The gift was made on April 22^nd, 2010. The trust instrument provides that the trust income is to be distributed quarterly to Laura Bertram; Lynn Bertram invalid mother, in an amount sufficient for Lauras support and maintenance.

The trustees has to discretion to distribute any additional trust income or corpus to Lynn Bertrams three adult childrens any trust accounting income remaining after making this distribution will be distributed to the Green party. Upon Laura Bertrams death the trust will terminate and trust corpus and any accumulated income will be distributed in equal shares to Lynns childrens. The Bertram trust is not a grantor trust.

Jack Murray is concerned about any unforeseen tax consequences of the transfer of MFI stock into the Bertram trust. He needs a full explanation of any specific consequences of MFI for it 2010 taxable year. He also want to know how his personal tax situation for 2010 (including any deduction for his $4750 interest payment) is affected by the corporate- level tax consequences. Finally, Murray wants to know if there is any way to avoid or negate any unexpected or undesirable consequences of Lynn Bertrams generous gift.

Assume that jack Murray was incorrect as to the amount of it MFI lost carryforward into 2010. The correct amount of this carryforward was $35,000, not $12,000. How would this change in the fact affect your answer concerning the effect of Lynn Bertrams gift on Murrays personal tax situation for 2010?

My subject is Accounting and taxation