On the last day of the year, XYZ Corporation made a nonliquidating distribution to Jane, its sole shareholder, of $110,000 in cash. The corporations earnings and profits were $100,000 on the last day of the year. How much was the total dividend income received by the shareholder as a result of the distribution made by XYZ Corporation? a. 0. b. $100,000 dividend. c. $110,000 dividend. d. None of the above Tom and Jenny formed TJ Inc., a corporation, in 2011. Tom received 70 shares of the voting common stock, the only class of stock of the corporation, in exchange for property, and Jenny received 30 shares that were issued in exchange for her accounting services. In 2013, Tom transferred additional property to TJ Inc. The property had an adjusted basis to Tom of $60,000 and a fair market value of $70,000 on the date of the transfer. On the same day, and in exchange for the property he transferred to TJ Inc., Tom received cash of $15,000 and an additional 55 shares of stock worth $55,000. How much gain was recognized by Tom as a result of this transaction? a. 0. b. $10,000. c. $15,000. d. $25,000 Sue transferred a building to her newly formed corporation, SUECO, Inc. The building had an adjusted basis to Sue of $75,000 and a fair market value of $150,000 on the date of the transfer. The building was encumbered by a mortgage of $100,000, which SUECO Inc. assumed. On the same day, and in exchange for the building she transferred to SUECO Inc., Sue received 100 percent of SUECOs only class of stock. What is Sues adjusted basis in the stock she received from SUECO? a. $25,000. b. $50,000. c. $75,000. d. $100,000 e. none of the above Sam created MNO Inc. several years ago and has owned all 10 outstanding shares of MNO Inc. since the creation of MNO Inc. The fair market value of those shares is now $50,000. Sams friend, Kal, owns a building having a fair market value of $450,000 and an adjusted basis to Kal of $100,000. The building is encumbered by a $130,000 mortgage. Earlier this month, Sam and Kal discussed Sams becoming involved in the business of MNO Inc., and as a result of these discussions, Kal transferred the building to MNO Inc. and in exchange for the building, MNO Inc. transferred to Kal 90 shares of authorized but not previously issued stock of MNO Inc. How much gain does Kal realize and recognize as a result of these transfers? a. Realized gain of 0 and recognized gain of 0. b. Realized gain or $350,000, none of which is recognized. c. Realized gain of $350,000 and recognized gain of $340,000. d. Realized gain of $350,000 and recognized gain of $30,000. Tom owned all of the outstanding stock of NEWCO3 Corporation. Tom transferred a building, cash, and publicly traded stock to NEWCO3 Corporation. The adjusted basis and the fair market value of the assets transferred to NEWCO3 Corporation, and the amount remaining on the mortgage on the building transferred, were as follows: Basis Value Amount Building $20,000 $55,000 Mortgage on building $45,000 Cash $5,000 $5,000 Publicly traded stock $15,000 $12,000 Big Corporation distributed land to its sole shareholder, Little Corporation, in a liquidating distribution. At the time of the distribution, the land had a fair market value of $240,000 and Big Corporations adjusted basis in the land was $200,000. The land was encumbered by a $230,000 mortgage. How much gain did Big Corporation recognize as a result of the distribution? a. 0. b. $10,000. c. $30,000. d. $40,000. 13. For the current taxable year, Corporations gross income from operations was $1,000,000 and its expenses from operations were $1,500,000. Corporation also received a $600,000 dividend from a 10 percent-owned corporation. How much is Corporations taxable income for the current taxable year? a. 0. b. $70,000. c. ($320,000.) d. $420,000. . John purchased his home in 1995 for $600,000, consisting of $400,000 cash plus $200,000 he borrowed from The Bank. The Bank took back a $200,000 mortgage on the property. In 2005, when Johns home was worth $850,000, Tom refinanced his home and got a $650,000 mortgage from The Savings and Loan Bank. The Savings and Loan Bank paid off The Bank mortgage and took back a $650,000 mortgage on the property. John used $150,000 of the refinance money to build an extension on the home. Johns adjusted basis in the his home is a. $600,000 b. $850,000 c. $650,000 d. $1,250,000 e. none of the above . For the current taxable year, Corporations gross income from operations was $1,000,000 and its expenses from operations were $1,500,000. Corporation also received a $600,000 dividend from a 10 percent-owned corporation. How much is Corporations taxable income for the current taxable year? a. 0. b. $70,000. c. ($320,000.) d. $420,000. 14. A tract of land was distributed by MNO Inc. to its sole shareholder, Martha, as a dividend. At the time of the distribution, MNO Inc.s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the following statements is accurate? a. MNO Inc.s earnings and profits must be increased by $40,000 , the amount of the unrecognized gain, and decreased by $40,000 (the adjusted basis of the land), and increased by $55,000 (the amount of the liability). b. The net adjustment to MNO Incs earnings and profits is $40,000, the amount of the recognized gain. c. The distributing corporations realized gain of $40,000 is recognized to the extent of the $15,000. d. None of the above statements is accurate. How much gain did Sandra recognize as a result of the transaction, and what was the character of the gain? a. Sandra recognized $12,000 of gain, all of which was ordinary income. b. Sandra recognized $20,000 of gain, at least $12,000 of which was ordinary income. c. Sandra recognized $30,000 of gain, at least $12,000 of which was ordinary income. d. Sandra recognized $100,000 of gain, all of which was ordinary income. 13. For the current taxable year, Corporations gross income from operations was $1,000,000 and its expenses from operations were $1,500,000. Corporation also received a $600,000 dividend from a 10 percent-owned corporation. How much is Corporations taxable income for the current taxable year? a. 0. b. $70,000. c. ($320,000.) d. $420,000. . Medium Inc. had one class of stock outstanding. The one class of stock was owned 50 shares by Linda, 30 shares by Lindas mother, and 20 shares by Lindas grandmother. On December 31, 2012, Medium Inc. redeemed 20 of Lindas 50 shares, and in exchange for the stock, Medium Inc. distributed to Linda a building that had an adjusted basis to Medium Inc. of $10,000 and a fair market value of $50,000. Assume that Medium Inc.s current earnings and profits were $200,000, there were no accumulated earnings and profits, and Lindas total basis in her stock before the redemption was $20,000. How much is Lindas basis in her remaining stock after the redemption, and what is her basis in the building? a. Stock basis: $10,000; building basis: $10,000. b. Stock basis: $10,000; building basis: $50,000. c. Stock basis: $20,000; building basis: $10,000. d. Stock basis: $20,000; building basis: $50,000. e. None of the above. A capital asset forming part of a decedents gross estate takes as its basis a. the fair market value of the asset as determined for federal estate tax purposes. b. the higher of the decedents basis in the asset or the fair market value of the asset as determined for federal estate tax purposes. c. the lower of the decedents basis in the asset or the fair market value of the asset as determined for federal estate tax purposes. d. the decedents basis in the asset. Which of the following transactions does not constitute a completed gift for federal gift tax purposes? a. An outright gift of $100,000 to a United States citizen spouse. b. A gratuitous transfer of $1,000,000 to an irrevocable trust, with a life estate to the grantor's sister, and the remainder to a grandchild. c. A year-end bonus of $15,000 to the vice-president of finance from the majority shareholder. d. All are completed gifts for federal gift tax purposes. Leslie, a widow, died on October 31, 2012. Leslie had never made any taxable gifts during her lifetime. On her death, she owned the following property: A vacation beach house that had a basis to Leslie of $3,000,000 and a fair market value on the date of Leslie's death of $2,000,000, a vacant lot that she owned with her sister Melissa, as tenants in common. At Leslie's death, her basis in her interest in the lot was $2,000,000, and the fair market value of her interest in the lot was $2,000,000. Leslie owned publicly traded stock with a basis of $1,500,000 and a fair market value of $1,000,000 that was held in a transfer on death account, her sister Melissa being the beneficiary. (Assume all assets have the same value on the alternate valuation date as on the date of death). What is the amount of Leslies gross estate for federal estate tax purposes? a. 0 b. $4,000,000. c. $5,000,000. d. $6,500,000. If inventory that was contributed to a partnership in exchange for a partnership interest is sold by the partnership , how will the character of the income or loss be determined? a. The character of any income or loss in any case will be ordinary income. b. The character of any income or loss will be ordinary if the contributed property is sold by the partnership within five years after the date of contribution even if the asset is a capital asset in the hands of the partnership. c. The character of any income or loss will be based on the character of the asset in the hands of the partnership regardless of when the contributed property is sold by the partnership. d. The character of any income or loss will be ordinary to the extent of the contributing partners built-in gain or loss in the property at the time of the contribution regardless of when the contributed property is sold, and any balance will based on the character of the asset in the hands of the partnership. . Assume that all of the following property is used in a trade or business and has been held in excess of one year. Which property will not qualify as Section 1231 property upon its disposition by sale or exchange? a. Property includible in inventory b. Business property condemned for public use c. Property held for production of rent and royalties d. Depreciable property used in a trade or business