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1. What happens to a subsidiary's tax attributes (e.g., net operating loss, E & P, capital loss carryover) upon a 332 liquidation?
2. The stock of Magenta Corporation is owned by Fuchsia Corporation (90%) and Marta (10%). Magenta is liquidated on September 2, 2011, pursuant to a plan of liquidation adopted earlier in the same year. In the liquidation, Magenta distributes various assets worth $1,620,000 (basis of $1,950,000) to Fuchsia (basis of $1.2 million in Magenta stock) and a parcel of land worth $180,000(basis of $165,000) to Marta (basis of $35,000 in Magenta stock). Assuming the § 338 election is not made, what are the tax consequences of the liquidation to Magenta, Fuchsia, and Marta?
3. Tina and Rex plan to form the TR Partnership to acquire, own, and manage a certain rental real estate property. The financial information has been accumulated into an Offering Memorandum that is currently being brokered to investors (for a 6% commission). What types of costs is the partnership likely to incur, and how will those costs be treated?
4. Jared and Chelsea form the equal JC Partnership. Jared contributes cash of $20,000 and land (fair market value of $80,000, adjusted basis of $65,000), and Chelsea contributes the assets of her sole proprietorship (value of $100,000, adjusted basis of $125,000). What are the tax consequences of the partnership formation to Jared, Chelsea, and JC Partnership?
5. In 2011, Osprey Company had operating income of $320,000, operating expenses of $270,000, and a long-term capital gain of $20,000. How does Juanita, the sole owner of Osprey Company, report this information on her individual tax return under the following assumptions?
a. Osprey Company is a proprietorship, and Juanita did not make any withdrawals from the business during the year.
b. Osprey Company is a C corporation and pays no dividends during the year.
6. In the current year, Azure Company has $500,000 of net operating income before deducting any compensation or other payment to its sole owner, Sasha. In addition, Azure has a long-term capital gain of $50,000. Sasha has significant income from other sources and is in the 35% marginal tax bracket. Based on this information, determine the income tax consequences to Azure Company and to Sasha during the year for each of the following independent situations.
a. Azure is a C corporation and pays no dividends or salary to Sasha.
b. Azure is a C corporation and distributes $100,000 of dividends to Sasha.
c. Azure is a C corporation and pays $100,000 of salary to Sasha.
d. Azure is a sole proprietorship and Sasha withdraws $0. e. Azure is a sole proprietorship and Sasha withdraws $100,000.
7. In the current year, Sandpiper Corporation (a C corporation) had operating income of $215,000 and operating expenses of $155,000. In addition, Sandpiper had a long-term capital gain of $12,000 and a short-term capital loss of $27,000.
a. Compute Sandpiper's taxable income and tax for the year.
b. Assume the same facts except that Sandpiper's long-term capital gain was $35,000. Compute Sandpiper's taxable income and tax for the year.
8. Tern Corporation produces and sells refrigerators for outdoor use (e.g., patios, porches, verandas). Its major manufacturing facility is in Georgia, but it also has a smaller plant in Nicaragua. Gross receipts for the current year are derived as follows: $8.2 million from Georgia and $2 million from Nicaragua.
a. What is Tern's DPGR for the current year?
b. What if the gross receipts from the Nicaragua plant are only $400,000 (not $2 million)?
9. Flicker Corporation, a calendar year taxpayer, manufactures yogurt that it wholesales to grocery stores and other food outlets. It also furniture through big box stores. It manufactures some of the furniture and imports some from unrelated foreign producers. For tax year 2011, Danping's records reveal the following information:
Manufactured Imported Gross receipts $2,600,000 $1,600,000 CGS 1,100,000 850,000
Danping also has selling and marketing expenses of $700,000 and administrative expenses of $300,000. Under the simplified deduction method, what is Danping's: a. DPGR? b. QPAI? c. DPAD?
10. For 2011, Apple Corporation (a calendar year integrated oil company) had the following transactions:
Taxable income $4,000,000
Regular tax depreciation on realty in excess of ADS (placed in service in 1989) 1,700,000
Excess intangible drilling costs 500,000
Percentage depletion in excess of the property's adjusted basis 700,000
Assume no ACE adjustment.
a. Determine Apple Corporation's AMTI for 2011.
b. Determine the tentative minimum tax base.
c. Determine the tentative minimum tax.
d. What is the amount of the AMT?
11. In each of the following independent situations, determine the tentative minimum tax (assume the companies are not in small corporation status):
AMTI (before the Exemption Amount)
Brant Corporation $170,000
Tern Corporation 190,000
Snipe Corporation 325,000
Kindly find attached the questions with their subsequent guides.
Upon liquidation of Section 332 provides that the subsidiary's tax attributes such as net operating loss and earnings and profits carryover to the parent company
Magenta is the subsidiary, Fuchsia is the parent corporation, and Marta is the minority shareholder. Section 332 provides that a subsidiary liquidating does not recognize gain or loss on distribution to 80% distribute. Therefore Magenta recognizes no gain or loss on distribution to its parent company Fuchsia. Section 311 (b) provides that a liquidating company recognizes gain but not loss on distribution to minority shareholder. Result of Magenta's distribution of land to Marta is [$ 180,000 - $ 165,000] $ 15,000 loss thus the loss is not recognized.
Fuchsia is the parent corporation therefore recognizes no gain or loss. Fuchsia has a carryover basis of $ 1,950,000 and in assets and also carryover tax attributes.
Marta recognizes gain amounting to $ 145,000 [$ 180,000 (amount realized) - $ 35,000 (basis of stock)] and basis of land of $ 180,000.
The types of costs the partnership will incur include organization costs and syndication costs. Organization costs are incurred when organizing the partnership and in filing required legal documents. The ...
Liquidation, cost of offering, partnership formation and taxable income is examined in the solution.
Tax - Partnerships and S Corporations
1. The December 31, 2009, balance sheet of the BCD General Partnership reads as follows.
Each partner shares in 1/3 of the partnership capital, income, gain, loss, deduction and credit. Capital is not a material income-producing factor to the partnership. On December 31, 2009, general partner Cassie receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736. Nothing is stated in the partnership agreement about goodwill. Cassie's outside basis for the partnership interest immediately before the distribution is $74,000.
How much is Cassie's recognized gain from the distribution and what is the character of the gain?
2. Bidden, Inc., a calendar year S corporation, incurred the following items.
Depreciation recapture income 12,000
Short-term capital gain 30,000
Cost of goods sold (42,000)
Municipal bond interest income 7,000
Administrative expenses (15,000)
Depreciation expense (17,000)
Charitable contributions (14,000)
Calculate Bidden's nonseparately computed income.
3. Adam contributes property with a fair market value of $3,000,000 and an adjusted basis of $1,200,000 to AP Partnership. Adam shares in $2,000,000 of partnership debt under the liability sharing rules, giving him an initial adjusted basis for his partnership interest of $3,200,000. One month after the contribution, Adam receives a cash distribution from the partnership of $3,000,000. Adam would not have contributed the property if the partnership had not contractually obligated itself to make the distribution. Assume Adam's share of partnership liabilities will not change as a result of this distribution.
a. Under the IRS's likely treatment of this transaction, what is the amount of gain or loss that Adam will recognize because of the $3,000,000 cash distribution?
b. What is the partnership's basis for the property after the distribution?
c. If Adam is unhappy with this result, can you suggest a possible alternative that may provide him with a better answer?
4. Individuals Adam and Bonnie form an S corporation, with Adam contributing cash of $100,000 for a 50% interest and Bonnie contributing appreciated ordinary income property with an adjusted basis of $20,000 and a fair market value of $100,000.
a. Determine Bonnie's initial basis in her stock, assuming that she receives a 50% interest.
b. The S corporation sells the property for $120,000. Determine Adam's and Bonnie's stock basis after the sale.
c. Determine Adam's and Bonnie's gain or loss if the company is liquidated.
5. Crow Corporation was organized ten years ago to construct office buildings. Six years ago, Crow began selling office furniture. In the current year, Crow discontinues its office furniture business and sells all of the assets used in that business for $1 million. Further, Crow distributes the entire sales proceeds in a pro rata redemption of 100 shares of stock from each of its two equal shareholdersâ??Monique, an individual, and Eagle Corporation (i.e., 200 shares in total redeemed). Monique has a basis of $80,000 in her redeemed stock, Eagle Corporation has a basis of $95,000 in its redeemed stock, and both shareholders have held their stock interest in Crow for several years. Crow Corporation has E & P of $2 million and 1,000 shares outstanding at the time of the distribution. What are the tax consequences of the stock redemption to Monique, to Eagle Corporation, and to Crow Corporation?
6. Mary and Jane, unrelated taxpayers, own Gray Corporation's stock equally. One year before the complete liquidation of Gray, Mary transfers land (basis of $300,000, fair market value of $280,000) to Gray Corporation as a contribution to capital. Assume that Mary also contributed other property in the same transaction having a basis of $10,000 and fair market value of $50,000. In liquidation, Gray distributes the land to Jane. At the time of the liquidation, the land is worth $200,000.
a. How much loss may Gray Corporation recognize on the distribution of the land to Jane?
b. Assume that the transfer of land to Gray Corporation was made so that the corporation could subdivide the land and build residential housing. However, a subsequent deterioration of the housing market forced Gray Corporation to abandon its plans. What amount of loss may Gray Corporation recognize on the distribution of the land to Jane?
1. The MOG Partnership reports ordinary income of $60,000, long-term capital gain of $12,000, and tax-exempt income of $12,000. The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income. Their allocation of ordinary income will be reduced accordingly, and Olivia will be allocated a proportionately greater share of ordinary income. (In other words, each partner will receive allocations totaling 1/3 of the total $84,000 of partnership income.) This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.
a. Describe the elements that must be included in a partnership agreement in order for an allocation to have "economic effect."
b. Discuss whether or not the MOG allocation would be permitted and provide your reasoning.
2. Compare the distribution of property rules for an S corporation with the corresponding partnership rules.
3. Your client has operated a sole proprietorship for several years, and is now interested in raising capital for expansion. He is considering forming either a C corporation, S Corporation or an LLC.
a. Describe the treatment of an LLC and discuss any advantages the LLC offers over the C or S corporation.
b. Assume instead the client has previously operated as a C corporation. Describe the tax consequences of converting to an LLC.
c. Assume that there is an angel investor that is an individual, what are the benefits or disadvantages of being an S Corp.View Full Posting Details