C239 Problems

What is considered a like-kind exchange?

Exchange of a computer server for two personal computers by an individual

How should the cost of developing computer software be deducted for tax purposes?

Expenses in the year the costs are incurred or amortized over 60 months.

Which activity of the tax advisor exemplifies the nature of tax compliance as a closed fact situation?

Considering the facts that have already occurred.

Art, a sole proprietor operates Cherry Farms. Which schedule should he use to individually report the profit or loss from farming?

Form 1040 Schedule F, Profit or Loss From Farming

In 2013, an individual sold the stock of five different corporations that she owned. Which form or schedule should she use to individually report the sales of each of the different company stocks?

Form 8949

What is a tax advantage of doing business as an S corporation?

Corporate profits are taxed at the shareholders level in the year earned

What is a tax advantage of doing business as an S corporation?

Corporate profits are taxed at the shareholders level in the year earned.

What is considered a capital asset for tax purposes?

Customer list

A taxpayer has $20,000 of short-term capital losses and $10,000 of long-term capital gains. What amount should the taxpayer report on for capital gains (losses) on the 1040?

$(3,000)

A corporation provides a shareholder the right to purchase one additional share of its stock for $40 for each of the shares that the shareholder currently owns. The shareholder currently owns 1,000 shares. The fair market value of the stock is $50 per share. The shareholder's adjusted basis in his 1,000 original shares is $8,000. What is the shareholder's basis in the stock rights that should be used to calculate gain or loss if the rights were to be sold?

$1,333

A Personal Service Corporation (PSC) reports taxable income of $300,000. A Personal Service Corporation is taxed at 35%. What is the PSC's regular tax liability?

$105,000

Roger established a trust for the benefit of his two children. The principal amount of the trust is $300,000 with expected earnings of 10% per year. In the current tax year, the trust earned $30,000 of investment income and had $3,000 of expenses. What is the trust's taxable income if it distributes $16,000 during the year?

$11,000

An individual established a trust for the benefit of her two children. The principal amount of the trust is $250,000 with expected earnings of 10% per year. In the current tax year, the trust earned $25,000 of investment income and had $2,500 of expenses. What is the trust's taxable income if it distributes $10,000 during the year? There are no non-recaptured net Section 1231 losses from previous years.

$12,500

An individual has formed a partnership in which she owns 33.33%. The first year of the partnership it earns gross income of $150,000 for the tax year of 2014. What is the total tax that will be paid by the individual this year if the individual's marginal tax rate is 40%, and the corporate marginal rate is 15%?

$20,000

A corporation that has current earnings and profits of $150,000 distributes 75 shares of preferred stock with a fair market value of $125,000 to its sole shareholder in a nontaxable stock dividend. Prior to the distribution, the shareholder owned 250 shares of common stock with an adjusted basis of $100,000 and a fair market value of $750,000. The shareholder subsequently sells the preferred stock to an unrelated party for $5,000 per share. How much capital gain must the shareholder recognize as a result of the sale of the preferred stock shares?

$235,714

A corporation is undergoing a complete liquidation and distributes land to an individual shareholder in exchange for all of the shareholder's stock. The land has a basis of $300,000 and a FMV of $400,000 on the corporation's books and also has a $325,000 liability. The shareholder assumes the liability on the property, and their basis in the corporation's stock is $100,000. Which gain or loss must the shareholder recognize on the distribution?

$25,000 loss

A non-corporate taxpayer has two transactions involving the sale of capital assets during the year. As a result of the transactions, he has a short-term capital gain of $2,000 and a long-term capital loss of $6,000. A corporate taxpayer has the identical transactions occur during the year. Which amounts will be added or deducted from ordinary income for the non-corporate and corporate taxpayer capital gains, respectively?

$3,000 deduction, no deduction or addition

In a liquidating reorganization, Company A transfers assets with a $100,000 adjusted basis to Company X in exchange for $300,000 of cash. Company A has five shareholders, each of whom owns a 20% share in the company. During the reorganization, $250,000 in boot is distributed to the five shareholders based on their ownership interests. What is the taxable gain each shareholder must recognize if the stock has an adjusted basis of $20,000 for the five shareholders?

$30,000

Stewart Racing Corporation owns 100% of the stock of Bush Corporation. The adjusted basis of its stock is $200,000. Bush distributes to Stewart assets with a $500,000 FMV and a $350,000 adjusted basis. Stewart has a $200,000 earnings and profits (E&P) balance. What is Bush's gain or loss on the distribution?

$300,000, $0 recognized

A company is trying to estimate how much working capital they will need based on the Bardahl formula. The firm estimates that their operating cycle is 200 days, their cost of goods sold is $500,000, and their operating expenses are $200,000, of which $50,000 are noncash expenses. Assume a 365-day year convention. What is the estimated working capital that the firm needs rounded to the nearest thousand dollars?

$356,000

A closely held C Corporation pays the controlling shareholder an annual salary of $1,000,000. Based on the size of the corporation, its operations, the shareholder's duties, and a salary comparison with other firms, the IRS contends the salary should be no higher than $450,000. How much will the company be allowed to deduct as a business expense assuming the IRS ruling stands, but the company has already paid out the full $1,000,000 to the employee and cannot reasonably expect to recoup it?

$450,000 since only the allowable salary is deductible

What is the maximum ordinary loss a single individual can claim on her tax return if a Section 1244 small business corporation liquidates?

$50,000

C Corporation owns 100% of the stock of B Corporation. The adjusted basis of its stock investment is $100,000. A plan of liquidation is adopted. B Corporation distributes to C Corporation assets with a $325,000 FMV and a $275,000 adjusted basis. B Corporation has a $150,000 earnings and profit (E&P) balance. What is B Corporation's gain and/or loss on the distribution?

$50,000 realized gain, but no recognized gain

A corporation reports taxable income of $400,000 for the year it placed equipment in service. The equipment cost $350,000. The corporation expensed the equipment under Sec. 179. For earnings and profit (E&P) purposes, the company only expensed $50,000 for the equipment. What should be the company's current E&P after accounting for the equipment?

$700,000

The state condemns a taxpayer's bowling alley on October 15, 2012, and in the next year compensates the taxpayer. When is the last day to replace the bowling alley with like-kind property to qualify for non-recognition of gain treatment?

December 31, 2016

The state condemns a taxpayer's bowling alley on may 1, 2012, and in the next year compensates the taxpayer. What is the last day to replace the bowling alley with like-king property to qualify for non-recognition of gain treatment?

December 31, 2016

What is an appropriate step in tax planning strategy for a potential personal holding company?

Declare a consent dividend after year-end to reduce the taxable base

A corporation distributes property with a fair market value of $50,000, an adjusted basis of $20,000 for taxable income purposes, and an adjusted basis of $15,000 for earnings and profit (E&P) purposes to one of its shareholders in a non-liquidating distribution. The property is encumbered by a $60,000 mortgage which the shareholder assumes. The corporation pays tax at a 34% marginal tax rate. What is the effect of the income tax paid on any gain on the corporation's E&P?

Decrease of $13,600

A client owns an apartment building with a fair market value of $250,000, an adjusted basis of $175,000, and a mortgage of $150,000. The client exchanges the building and $40,000 cash for a different apartment that has a fair market value of $220,000. The client assumes the $80,000 mortgage on the building to be acquired. Which tax amount will the client realize as a result of the exchange?

$75,000 gain

A personal service corporation reports taxable income of $250,000. Personal Service Corporation is taxed at 35%. What is the corporation's regular tax liability?

$87,500

An individual owns 60% of a CPA firm. The partnership sustained total operating losses of $80,000 in the current tax year, and the basis in the partnership is adequate to sustain the loss. What is the amount of the individual's recognized loss for the current tax year?

($48,000)

A closely-held company, which is not a personal holding corporation, has a $500,000 accumulated earnings and profit balance. During the year, the firm has $300,000 in regular taxable income and $102,000 in income taxes. Assume the company is taxed at the 34% marginal rate for standard income taxes and the 20% rate for accumulated earnings taxes. The company is presently involved in litigation with a customer that the firm's outside counsel estimates the firm has a 30% probability of losing. If the firm loses, it will owe $350,000. The case will resolve itself in the next year. What is the firm's accumulated earnings tax rounded to the nearest thousand?

0

A company has $700,000 of regular taxable income, and $100,000 of alternative minimum tax (AMT) preference items. The firm also has $105,000 of positive AMT adjustment items, and $70,000 of negative AMT adjustment items. The company's regular tax liability is $238,000. What is the firm's AMT?

0

An individual operating a business as a sole proprietorship has revenue of $70,000 and expenses of $80,000 in a given year. The individual also earns $5,000 from an outside part-time job. What is the individual's tax liability assuming the individual's marginal tax rate is 25%, and the corporate tax rate is 20%?

0

DJTS Motorsports has $300,000 of regular taxable income, and $500,000 of alternative minimum tax (AMT) preference items. The company also has $150,000 of positive AMT adjustment items, and $230,000 of negative AMT adjustment items. The company's regular tax liability is $170,000, What is DJTS's AMT?

0

Santa Land Corporation distributes property with a FMV of $40,000, an adjusted basis of $15,000 for taxable income purposes, and an adjusted basis of $20,000 for E&P purposes to one of its shareholders in a non-liquidating distribution. The property is encumbered with a $50,000 mortgage which the shareholder assumes. Santa Land marginal tax rate is 34%. What is the effect of the income tax paid on any gain on Santa Land's E&P?

11,900

How should a liquidating corporation distribute its property to minimize the payment of taxes?

Distribute property that has declined in value in the last tax year it has conducted business and distribute property that has increased in value the following year

McPhee Limited is trying to estimate how much working capital they will need based on the Bardahl formula. The firm estimates that its operating cycle is 95 days, its cost of goods sold is $400,000, and its operating expenses are $200,000, of which $50,000 are noncash expenses. Assume a 365-day year convention. What is the estimated working capital that the firm needs rounded to the nearest thousand dollars?

143,000

Silva Corporation liquidates with Kourtny receiving $25,000 in cash plus land with a FMV of $175,000 and a basis of $75,000. Kourtny's basis in the Silva stock is $150,000. Kourtny assumes a $50,000 mortgage on the land. How much does Kourtny realize and recognize on the liquidation of her stock?

150,000 - 0

Claire owns an apartment building with a $500,000 basis, which is subject to a liability of $200,000. Jane owns an office building with a $700,000 FMV, which is subject to a $175,000 mortgage. They exchange buildings and assume the related liabilities. Claire pays 45,000 cash to Jane in the transaction.

180,000 -25000- 545,000

Hannah Bears, Inc. a closely-held company, which is not a personal holding corporation, has $3,000,000 accumulated earnings and profit balance. During the year, the firm has $1,500,000 in regular taxable income. Assume the company is taxed at the 34% rate for standard income taxes and 20% rate for accumulated earnings taxes. What is Hannah's accumulated earnings tax, rounded to the nearest thousand?

198,000

Silva Corporation liquidates with Kourtny, the sole shareholder, receiving $25,000 in cash plus land with a FMV of $175,000 and a basis of $75,000. Kourtny's basis in the Silva stock is $150,000. How much does Kourtny realize and recognize on the liquidation of her stock?

200,000-50000

Stewart Racing has $850,000 of regular taxable income and $900,000 of alternative minimum tax (AMT) preference items. The company also has $50,000 of positive AMT adjustment items, and $250,000 of negative AMT adjustment items. The company's regular tax liability is $289,000. What is Stewart's AMT?

21,000

A personal holding company (PHC) has regular income of $100,000, dividend-received deductions of $10,000, and a net operating loss of $20,000. The PHC pays $5,000 in foreign income taxes and $15,000 in dividends. What is its tax liability if the PHC has a tax rate of 20%?

22000

Anastasia transfers property with an adjusted basis of $25,000 and a $33,000 FMV in exchange for 90 shares of the newly formed corporation. The property transferred has a mortgage of $15,000, which the corporation assumed. Nicholas contributes $11,000 in cash in exchange for 20 shares of stock of the corporation. §351 requirements are met. What are Anastasia's realized and recognized gain?

23,000 - 0

An individual is considering alternative organizational forms for his business. The business net earnings are $200,000. The owner is single and has $10,000 of income from other sources and personal itemized deductions of $16,000. Compensation for services is $85,000. Business charitable contributions are $5,000. Other owner distributions are $20,000. What will be the owner's taxable income if the business is operated as an S Corporation?

270,050

Lisa exchanges land subject to a liability of $80,000 for $200,000 of stock owned by Tom Chandler. Her adjusted basis in the land is $146,000. How much does Lisa realize on the transaction? What is Lisa's realized gain (loss) on the transaction?

280,000 134,000

Czar Russia Company is trying to estimate how much working capital they will need based on the Bardahl formula. The firm estimates that its operating cycle is 130 days, its cost of goods sold is $750,000, and its operating expenses are $150,000, of which $100,000 are noncash expenses. Assume a 365-day year convention. What is the estimated working capital that the firm needs, rounded to the nearest thousand dollars?

285,000

The Prodigal Son Corporation provides a shareholder the right to purchase one share of its stock for $75 for each of the 500 shares that the shareholder currently owns. The FMV of the stock is $90 per share. The shareholder's adjusted basis in the 500 original shares is $25,000. Example C: 4-21 and 4-22 What is the shareholder's basis in the stock rights that should be used to calculate gain or loss on the sale of the stock if the rights are redeemed?

3,571

How much of the excess is offset against ordinary income on a dollar-for-dollar basis if net long-term capital losses exceed net short-term capital gains?

3000

MacGyver Corporation reports the following information for the current year: Gross income from operations 1,000,000 Charitable contributions 50,000 Operating expenses 600,000 W-2 wages related to domestic production activity deduction included in operating expenses above are $200,000. What is the amount of the corporation's domestic production activity deduction?

32,400

Fairfield Corporation reports taxable income of $300,000 for the year. The $300,000 includes $50,000 of interest, $90,000 of dividends received, and a $63,000 dividends-received deduction. Calculate Fairfield's current E&P.

363,000

Stride Rite (SR) Corporation owns 100% of the stock of Twinkle Toes Shoes (TTS), Incorporated. SR's basis in the stock of TTS is $200,000. TTS' assets have an $800,000 FMV and an $400,000 adjusted basis. How much gain and/or loss does SR and TTS realize and recognize in the complete liquidation of TTS?

600,000 - 0 400000 - 0

Jeremy performs accounting services FMV of $50,000 to a corporation in exchange for 10% of its stock, FMV of $65,000. What is the immediate tax consequence to Jeremy?

65000

Beginning in 2013, higher-income taxpayers' itemized deductions are reduced. What is the maximum percentage higher-income taxpayers' itemized deductions are reduced

80%

Jane, a single taxpayer with one dependent, reports AGI of $302,000. She has $10,000 of home mortgage interest and property taxes, of $6,000. Her gross itemized deductions of $16,000 are reduced by how much?

80%

Ubenhad, a personal holding company (PHC), has regular income of $400,000, dividend-received deduction of $30,000, and a net operating loss of $40,000. The PHC pays $25,000 in foreign income taxes and $45,000 in dividends. What is Ubenhad's tax liability if the PHC has a tax rate of 20%?

80,000

Four years ago, Caillou Corporation distributes 200 shares of §306 stock with a FMV of $200,000 on the date of distribution to its sole shareholder, Hannah. Caillou's E&P on the date of distribution was $750,000. On this date, Hannah owned 300 shares of Caillou Corporation's common stock having a $300,000 adjusted basis and a FMV of $550,000. In the current year, Caillou redeemed all of the §306 stock from Hannah for $900,000 in a non-liquidating redemption. Caillou's E&P on the date of the redemption was $1,000,000. On the date of distribution, how much basis does Hannah allocate to the §306 stock? What type of income or loss does Hannah have on the redemption of the §306 stock? What is the basis of the common stock?

80,000-$900,000 -$300,000

Angel has an AGI of $85,000 without considering the sale of a nondepreciable asset for $35,000. The asset was acquired five years ago and has an adjusted basis of $50,000. She has no other sales or exchanges. Determine Angel's AGI for the following independent situations when the asset is: A capital asset § 1231 asset

82,000 - 70,000

Serendipity Corporation reports taxable income of $500,000 for the year it placed the equipment in service. The equipment cost $375,000. Serendipity expensed the equipment under §179. For earnings and profit (E&P) purposes, the company only expensed $50,000 for the equipment. What should be the company's current E&P after accounting for the equipment?

825,000

An individual is considering alternative organizational forms for his business. The business net earnings are $200,000. The owner is single and has $10,000 of income from other sources and personal itemized deductions of $16,000. Compensation for services is $85,000. Business charitable contributions are $5,000. Owner's dividends are $20,000. What will be the owner's taxable income if the business is operated as an C Corporation?

95,050.

Madi's Magical World, a closely-held company, which is not a personal holding or personal service corporation, has $1,000,000 accumulated earnings and profit balance. During the year, the firm has $750,000 in regular taxable income and $255,000 in income taxes. Assume the company is taxed at the 34% rate for standard income taxes and the 20% rate for accumulated earnings taxes. What is Madi's accumulated earnings tax, rounded to the nearest thousand?

99,000

A owns invest land with an adjusted bases of 50000 FMV of 70000 subject to a mortgage of 15000. B owns investment land with an adjusted basis of 60000 FMV of 65000 subject to a mortgage of 10000, A and B exchange real estate investments What are there gain and basis

A Gain-20000 Recognized-5000 Basis-50000 B Gain -5000 Recognized -0 Basis -65000

An Eleventh Circuit client who files in the U.S. Court of Federal Claims wants to know whether to include the terms of multiple options to renew a sale-leaseback to calculate a deduction. What is the authoritative reference?

A U.S. Court of Federal Claims case which analyzed sale-leaseback transactions for operating equipment

Which transaction is subject to the gift tax?

A taxpayer gives $30,000 to his father.

When does the foreign tax credit enter into the tax liability calculation?

After regular tax liability has been determined, but before the minimum tax credit

Which circumstance qualifies for ordinary loss treatment?

An affiliated corporation security becomes worthless.

How is the amount received by the holder treated when a debt instrument is retired?

As an exchange of pro

When should the gain on a sale of property sold on the installment basis be recognized for tax purposes?

As installments are collected

MacDonald Consulting, LLC is expected to earn $300,000 in annual profits. The LLC is owned equally by four people who have other substantial income and will not need their profits for many years. What is the appropriate tax-minimizing entity classification decision for this business?

C Corporation

An LLC is expected to earn $200,000 in annual profits. The LLC is owned equally by three people who have other substantial income and will not need their profits for many years. What is the appropriate tax-minimizing entity classification decision for this business?

C corporation

Which type of expenditure falls under Section 263?

Capital

Which tax structure criterion is a cause of the complexity of the tax system?

Equity

Which additional criterion is needed to qualify the sale of unharvested crops as Section 1231 property?

Growing on land used in a business and held for at least one year , plus both crops and land sold together to the same buyer

Corporation A makes the following payments to several vendors: I: $900 to an individual taxpayer II: $500 to a partnership III: $1,500 to an LLC (disregarded entity) IV: $1,500 to a C corporation Which vendors are required to receive 1099-MISC forms?

I and III

Individual A transfers property with an adjusted basis of $10,000 and a $13,000 FMV in exchange for 50 shares of stock of the newly formed corporation. The property transferred has a mortgage of $5,000, also assumed by the corporation. Individual B contributes $10,000 in cash in exchange for 50 shares of stock of the corporation. This transaction meets the requirements of Section 351. What reflects how the transferred liability is handled by the transferee and the transferor?

Individual A's amount realized from the transfer is increased due to the liability transfer, but her realized gain of $5,000 is not recognized as it is not considered to be boot.

Which type of income is included in gross income?

Interest

What is a strength of a spin-off divisive reorganization?

It can be used to minimize the risk associated with distinct operations.

Jason transfers property with an adjusted basis of $65,000 and a $90,000 FMV in exchange for 800 shares of a newly formed corporation. Jackson donates legal services in exchange for 200 shares of corporation stock, valued at $22,500. What is the control and gain for both Jason and Jackson?

Jason owns 80% of the corporation immediately following the exchange. Section 351 requirements are met. Jason is allowed to defer the $25,000 realized gain. Jackson owns 20% of the corporation and recognizes $22,500 in ordinary income.

What is optimal tax planning?

Maximizing after-tax cash flows

An individual received retirement benefits of $15,000, of which $12,000 was deposited into a savings account. The remaining $3,000 was spent on food, clothing, medical and dental care. How much support must the individual receive from his child for him to be classified as a dependent on his child's taxes?

More than $ 3,000

What is an advantage of filing a consolidated tax return?

Net operating losses of one member of the group can be used to offset net operating profits of another member of the group.

What is a tax consequence of a reorganization for the acquiring corporation?

No gain or loss is recognized when it receives cash or other boot property in exchange for its stock or debt obligations.

Individuals are taxed at which bracket when they receive qualified dividends that are taxed at 0%?

Not higher than 15.0.%

Which provision is a part of the sale-of-home rules?

Only one sale or exchange of the taxpayer's principle residence is permitted every two years, unless certain circumstances exist.

A taxpayer's gains and losses for the year pertaining to business assets that qualify as Section 1231 property are as follows: loss due to insurance reimbursement for theft -20000.00 Gain due to insurance reimbursment for fire damage -8000.00 Gain due to building condemnation - 23000.00 Loss due to sale of property - 10000.00 What is the tax treatment for the casualty and theft transactions?

Ordinary gain of $8,000 and an ordinary loss of $20,000

Which flow-through item should be included on a taxpayer's tax return?

Partnership income.

What is the default tax classification for a LLC?

Partnership, Form 1065

What is considered a capital asset for tax purposes?

Patent rights

An single individual has taxable income of $65,000. The tax liability is based on the first $9,075 taxed at 10%, the next $27,825 is taxed at 15%, and the last $28,100 is taxed at 25%. What tax structure is being applied to the individual's taxable income

Progressive

Which term indicates the difference between the amount from sale or disposition of an asset and the adjusted basis?

Realized gain (loss)

A taxpayer performs legal services (fair market value of $50,000) to a corporation in exchange for 10% of its stock (fair market value of $70,000). What is the immediate tax consequence to the taxpayer?

Recognize $70,000 of ordinary income

A taxpayer is married and files a separate return from his spouse. The taxpayer used his credit history to borrow $800,000 to purchase a home for their personal residence. On his separate return, he deducted the interest on the $800,000 acquisition debt. Which IRC section allows or disallows the interest deduction?

Section 163

Which type of exemption is not permitted under the Streamlined Sales & Use tax Initiative?

Seller-based exemptions

An investor purchased 100 shares of Corporation X stock on February 1, 2013, for $1,000. On August 2, 2013, the investor sold 50 shares of the Corporation X stock for $750 and is holding the remaining shares. How should the sale of the 50 shares on August 2, 2013, be classified?

Short-term capital gain

Which objective of tax law is exemplified if a tax credit is calculated on the qualifying expenditures for child care when both parents work?

Social.

The corporate tax rate structure is which of the following?

Stair steps

Which tax consequence should a corporation consider when determining the type of dividend to give to stockholders?

Stock dividends are typically tax free to shareholders

Business B, a calendar year C corporation, has incurred losses for each of the last five years. Before considering depreciation, Business B has an operating loss for this year. Which depreciation technique will maximize the firm's tax benefits?

Straight Line

A taxpayer occupied a primary residence for nine months, and then sold the residence. Which qualification is needed to exclude gain from taxable income?

Taxpayer moved because of taxpayer's divorce.

An individual transfers property with an adjusted basis of $32,000 and a $45,000 FMV in exchange for 80 shares of stock of a newly formed corporation. A second individual is able to donate legal services in exchange for the remaining 20 shares of corporation stock, valued at $15,000. What is the control and gain for both Individuals?

The first individual controls 80% of the corporation and is able to defer the gain of $13,000. The second individual controls 20% of the corporation and realizes $0 gain, but does recognize $15,000 in ordinary income.

How can a corporation legally avoid constructive dividend treatment for bootstrap purchases?

The purchaser can assign the option to the redeeming corporation.

What is the general rule for tax attributes of liquidating a corporation that is a non-controlled subsidiary?

They disappear when the process is complete.

What is the first taxable year in which any part of the gain on an involuntary conversion is realized?

They year in which the insurance proceeds are received

Where is a corporation's non-business income allocated when computing the corporation's taxable income?

To the state of the corporate headquarters of the payer.

What allows an individual to transfer property to a corporation at formation without recognizing gain?

Transferring the property in exchange for common stock

Which type of acquisitive reorganizations results in the target corporation remaining in existence as the acquiring corporation's subsidiary?

Type B