1. A taxable corporation faces a flat 35% marginal tax rate. What is the tax savings from an additional $100,000 deduction?
2. A taxpayer will pay $50,000 at the end of Year 1 and also at the end of Year 2. Given a 5% discount rate, what is the present value of this payment, assuming it is tax deductible?
3. Terral Corporation and Acceta, Inc form a joint venture as LLC and each take a 50% interest in capital and profits in return for a equal cash contribution to the new LLC. According to Reg.301.7701, the new LLC will be classified by default as a:
A. S Corporation
B. C Corporation
4. Ms. Pinella contributed property (adjusted basis $50,000, FMV $84,000) to Price Inc. in exchange for 200 shares of its stock (FMV=$74,000) and $10,000 cash. This exchange qualified under Section 351. Her gain recognized on this transaction is:
5. On January 2 of the current year, Jack and Jill form the Up-The-Hill Partnership. Both receive an equal 50% interest in the capital and profits of the partnership. Jack transfers equipment with a FMV of $80,000 and a tax basis of $50,000 to the partnership. Jill transfers $30,000 cash plus inventory with a FMV of $40,000 and a tax basis of $35,000 to the partnership. The partnership also, for a valid business reason, assumes a $10,000 recourse debt of Jill's. What is Jack's tax basis in his partnership interest (his outside basis)?
A. $ 80,000
B. $ 50,000
C. $ 85,000
D. $ 55,000
6. Dean and Jerry formed the R&B Partnership, agreeing to share profits and losses equally. Dean will manage the business and receive a guaranteed payment of $48,000 per year. The partnership has $240,000 net income from operations for the year, before considering the guaranteed payment:
What is Dean's share of the partnership's ordinary income and guaranteed payment?
A. $ 120,000
B. $ 144,000
C. $ 168,000
D. $ 96,000
7. Barbara received a nonqualified stock option to purchase 1,000 shares of her corporation's stock at a strike price of $56 per share. At the date of grant of the option, the market price of the stock was $50 per share. When the options were exercised the market price of the stock was $74 per share. How much taxable income must she recognize in the year the option is exercised?
8. Jaime performed consulting services for Excel Partnership in exchange for a 10 percent interest in its capital and profits. The FMV of the partnership's assets immediately before Jaime's admission was $1,500,000. The partnerships tax basis in the assets was $800,000. How much income does Jaime recognize from this transaction?
D. $ -0-
9. At the beginning of the year, Sally's basis in her partnership interest was $150,000. At the end of the year, her K-1 showed the following:
Cash withdrawal: $24,000
Partnership taxable income: $44,000
Dividend income: $16,000
Short-term capital loss: $8,000
Assuming there was no change in partnership liabilities during the year, Sally's basis in her partnership interest at the end of the year was:
10. Mike paid $750,000 cash for a 30% interest in the Red Dog Partnership this year. His K-1 contained the following items:
Ordinary business income: $240,000
Charitable contributions: $15,000
Section 1231 gain: $45,000
There is also $1,000,000 of debt that Red Dog borrowed from the bank. What is Mike's outside basis in Red Dog after all of these items are considered?
11. Jeannie is the sole shareholder of Gaines Corporation, an S corporation. At the beginning of Year 1, she had a basis in her stock of $65,000. For Year 1 her K-1 showed only one item, a $80,000 operating loss. For Year 2 her K-1 showed only one item, an operating income of $40,000. Jeannie has not made any further capital contributions to the corporation, nor has she loaned it any money. Based on the above facts, how much net ordinary income from the corporation does Jeannie report in her Year 2 personal tax return?
12. Lemonade, LLC distributes property to Arlene, one of its members. At the time of the distribution, Arlene had an outside basis of $50,000. The FMV of the property is $90,000 and its inside tax basis to Lemonade is $70,000. This is a non-liquidating distribution. What is Arlene's recognized gain on the distribution?
13. Harry Hubert owns 100% of the stock an S corporation with the following information for the year. The corporation has been an S corporation since inception.
Ordinary income: $90,000
Capital loss: $10,000
Cash distribution: $50,000
Basis in stock at 1-1: $40,000
What is Harry's tax basis in his stock on December 31, after all adjustments?
A. $ 60,000
B. $ 40,000
C. $ 70,000
D. $ 80,000
14.Oliver and Wendell are the two equal shareholders of Holmes Inc, an S corporation. It made an S election in its first year of operations. Each shareholder has a $10,000 basis in his stock at the beginning of the year. The corporation has $56,000 of net income from operations for the year and made a cash distribution of $80,000, which was divided equally between the two shareholders. Which of the following is a true statement?
A. The shareholders will have a dividend income.
B. The shareholders will have a capital gain on a portion of the distribution.
C. The shareholders will have a positive basis in their stock.
D. None of the above
15.Miriam Corporation is a taxable C corporation. In order to conduct business in a new state, Miriam forms Generic, LLC, a single-member LLC with Miriam as the only member. During its first year of operations, Generic, LLC has a taxable loss of $100,000. How much of this loss is included in Miriam's tax return for this first year?
C. $ 50,000
D. $ 25,000
16. Ellen, who is single, is a shareholder in The Hufnuttle Corporation, an S corporation. During the current year she sells 1,000 of her shares for a $75,000 loss. How much of the loss is ordinary, assuming the stock is Section 1244 stock?
17. . Joshua sells all of his stock in an S corporation on June 12 of the current year for $25,000. At the beginning of the year his stock basis was $10,000. The corporation allocated him $7,000 of income for the period up to June 12, and also made a $5,000 cash distribution to him on April 14. What is Joshua's recognized gain from the sale?
18. Larry is a shareholder in Target Corporation, which is part of a tax-deferred Type A merger with Acquiring Corporation. As part of the merger, Larry exchanges all of his Target stock (FMV=$100,000; tax basis=$40,000) for Acquiring stock worth $80,000 and $20,000 cash. What is Larry's recognized gain from the exchange?
19. Shirley received $40,000 cash and investment land (FMV $75,000, tax basis $60,000) in a liquidating distribution from her partnership when her outside basis was $120,000. Based on this information, what is Shirley's tax basis in the land?
20. A partner receives a liquidating distribution consisting of $150,000 cash for the partnership interest. The partner's outside basis in his/her interest is $14,000. The partner recognizes:
A. 0 gain
B. $14,000 gain
C. $136,000 gain
D. $150,000 gain
There are 4 questions that require additional research for me to be certain of my response. I have answered them, but I could be wrong. If you want more research for more certainty, repost 7, 15, 18, and 19 with 3 more credits.
1. 100,000 x 35% = $35,000
2. NPV of 2 future payments = $92,950. My calculator said 92,963, to be exact
3. Will be classified as a partnership, but they can elect to be taxed as an S corporation
4. The transfer under Sec 351 is normally a tax-deferred transaction, but ...
The solution explains each answer including calculations to understand the response. Of the 20 questions, the OTA suggests that 4 of the questions may need additional research. They are answered, but the reservation for additional information could change the response.