In November 2010, Sheldon, a calendar-year taxpayer, purchased office equipment (5-year property) for $600,000. The property was immediately placed into service (and is being used exclusively in Sheldons extremely profitable business). No other personal property will be purchased by Sheldon in 2010. Sheldon wants to take the largest possible tax deduction in 2010 relating to the equipment. Compute the largest tax deduction possible in 2010 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS): a. $120,000 b. $500,000 c. $557,143 d. $600,000 Armando contributed some inventory from his sole proprietorship to a public charity for its use. On the date of the contribution, Armandos basis in the inventory $2,000 and the fair market value was $5,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)? a. $0 b. $2,000 c. $3,000 d. $5,000 In 2010, Andrea invested in the EUNICE Limited Partnership (EUNICE L.P.) by paying $50,000 cash and contributing additional assets worth $50,000 (and having a basis equal to $50,000 on the date of the contribution). What amount did Andrea have at risk in EUNICE L.P. as of January 1, 2011, if EUNICE L.P. broke even in 2010 (i.e., EUNICE L.P. had no income or loss in 2010)? a. $0 b. $50,000 c. $100,000 d. $150,000 "BACKGROUND INFORMATION FOR QUESTIONS Maritza, Melissa and Marilyn recently formed a corporation named M3, Inc. (or M3). On December 31, 2009, M3 issued 400,000 shares of common stock to Melissa and 400,000 shares of common stock to Marilyn. Melissa and Marilyn each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2009). Their stock is subject to a 4-year repurchase option (at cost) in favor of M3. Each M3 repurchase option will lapse over time so that on December 31 (for each of the next four years), 100,000 shares will be released from the repurchase option. For example, if Melissa quits M3 before December 31, 2013, M3 can repurchase Melissas unvested shares for $0.01 per share (no matter what the fair market value is on that date). QUESTION 1 Assume that Melissa DID file a timely 83(b) election. On December 31, 2010, Melissa is still working at M3 and thus 100,000 of Melissas 400,000 shares are released from the M3 repurchase option (i.e., 100,000 of Melissas shares vest on December 31, 2010). On that same day, the fair market value of the M3 stock is $1.01 per share. What 2010 income, if any, must Melissa report as a result of these events? a. $0 b. $100,000 c. $101,000 d. $400,000 QUESTION 2 Assume that Marilyn did NOT file a timely 83(b) election. On December 31, 2010, Marilyn is also still working at M3 and thus 100,000 of Marilyn 400,000 shares are also released from the M3 repurchase option (i.e., 100,000 of Marilyn shares vest on December 31, 2010). On that same day, the fair market value of the M3 stock is $1.01 per share. What 2010 income, if any, must Marilyn report as a result of these events? a. $0 b. $100,000 c. $101,000 d. $400,000 QUESTION 3 Instead of acquiring stock, Maritza received incentive stock options on January 3, 2010. These incentive stock options allow Maritza to purchase up to 100,000 shares of M3 common stock for $0.01 per share (the fair market value on January 3, 2010). On December 31, 2010, the fair market value of the M3 stock is $1.01 per share. What 2010 income, if any, must Maritza report due to the receipt of the incentive stock options? a. $0 b. $1,000 c. $100,000 d. $101,000