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Entity transactions: capital gain/loss, distributions

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A. Jeff is the sole shareholder of a C corporation. In 2006, the corp sold a capital asset for a gain of $20000. Jeff is required to report the capital gain on his individual income tax return for 2006 & the gain is subject to a maximum rate of 15%.

B. Ramon owns a 30% interest in a partnership that earned $100000 in the current year. He also owns 30% of the stock in an S corporation that earned $100000 during the year. The partnership did not make any distributions, & the corp distributed $20000 to him. Ramon must pay income tax on $60,000 of income.

C. Wolf Enterprises, a partnership had a capital loss of $20000 during the year. Matt, who owns 50% of Wolf, may report $10000 of Worlf's capital loss on his individual Federal income tax return (Form 1040).

Multiple Choice
Geneva, a sole proprietor, sold one of her non-depreciable business assets for a $20000 long-term capital gain. Geneva's marginal tax rate is 35%. Gulf Corporation sold one of its assets for a $20000 long-term capital gain. Gulf's tax rate is 35%. What tax rates are applicable for these capital gains?
A. 15% rate applies to both
B. 15% rate to Geneva & 35% to Gulf
C. 15% rate to Gulf & 35% to Geneva
D. 35% to both
E. None of the above

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Solution Summary

In each of the four scenarios presented, the solution offers 2 or 3 sentences to explain the response.

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T/F
a. It would be an odd situation where the shareholder in a C corporation would have to report the gains generated inside the corporation. It could occur in a situation where there is a liquidation, or a direct distribution of the asset prior to sale. Regardless, the question states that Jeff will ...

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