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south western federal taxation

Questions and Answers of South Western Federal Taxation

Tula is a general partner in the ABT Partnership. How might she be subject to the NIIT and additional Medicare tax?
Prior to the Tax Cuts and Jobs Act of 2017, bonus depreciation applied only to new assets. Under the TCJA, qualified property, whether new or used, qualifies for 100% bonus depreciation. How does
Paul, who is in the 24% tax bracket, is the sole shareholder of a corporation and receives a salary of $60,000 each year. To avoid double taxation, he makes an S election for the corporation. The
Sara is an entrepreneur who likes to be actively involved in her business ventures. She is going to invest $500,000 in a business that she projects will produce a tax loss of approximately $100,000
Soong is considering opening a lawn-servicing business.a. What nontax factors should Soong consider in choosing a business entity?b. Are nontax factors more important than tax factors to Soong?
The corporate tax rate of 21% is lower than the top brackets for individuals. Consequently, C corporations will always owe less tax than most individual business owners. Do you agree? Why or why not?
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2019. The company generated a $74,000 NOL in 2018 and another NOL of $43,000 in 2019. Orange
Bertha, a single individual, reports taxable income of $177,500, of which $130,000 is attributable to an S corporation that provides consulting services, after paying wages of $72,000 to employees
Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2019. During 2020, Lonergan, Inc., distributes $140,000 to its
Jack and Mary, a married couple, report taxable income of $280,000, which includes $200,000 from Jack’s solely owned S corporation. The S corporation paid wages of $100,000 to employees (which does
Maul, Inc., a calendar year S corporation, incurred the following items.Tax-exempt interest income .................................$ 7,000Sales
One of your clients is considering electing S status. Texas, Inc., is a six-year-old manufacturing company with two equal shareholders, both of whom paid $30,000 for their stock. Going into 2019,
An S corporation may deduct:a. Charitable contributions within the percentage of income limitation applicable to corporations.b. Net operating loss carryovers.c. Foreign income taxes.d. Compensation
Caleb Samford calls you and says that his two-person S corporation was involuntarily terminated in February 2018. He asks you if they can make a new S election now, in November 2019. Draft a memo for
As of January 1, year 6, Kane owned all the 100 issued shares of Manning Corp., a calendar year S corporation. On the 41st day of year 6, Kane sold 25 of the Manning shares to Rodgers. For the year
On March 5, 2019, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident
Which of the following are requirements to be an S corporation?a. Limited to an absolute maximum of 100 shareholders.b. Has no resident alien shareholders.c. Has only one class of stock.d. May have
Glow and Bro organized an S corporation and intended to have only one class of stock. They agreed that all distributions should be proportional to their stock ownership. During 2019, Bro withdrew
Skylar is ready to retire and wants your professional opinion on the most advantageous way to dispose of a 40% limited ownership interest in the three-member STU LLC.Option #1. Skylar will
In 2016, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits. In 2019, the
Lola owns a one-half interest in the Lenax LLC. Her basis in this ownership interest is $22,000 at the end of the year, after accounting for the calendar year LLC’s current operations. On that
On December 31 of the current year, after receipt of his share of partnership income, Fox sold his interest in a limited partnership for $50,000 cash plus relief of all liabilities. On that date, the
ABC Partnership is engaged exclusively in providing consulting services, and capital is not a material income-producing factor. The ABC General Partnership agreement, which was drafted in 2014, did
Gearty’s adjusted basis in Worthington Company, a partnership, was $18,000 at the time Gearty received the following proportionate nonliquidating distributions of partnership property.Cash
The accrual basis Four Winds Partnership owned and operated three storage facilities in Milwaukee, Wisconsin. The partnership did not have a ? 754 election in effect on March 1, 2019, when partner
The RB LLC is owned equally by Romer and Brad. At the beginning of the year, Romer’s basis is $40,000 and Brad’s is $32,000. RB reported the following income and expenses for the current tax
Barney is a managing LLC member (treated as a general partner) of BG LLC and is allocated qualified business income (QBI) from BG of $800,000. (BG is not a “specified service trade or business.”)
Marcus and Madison are equal members of an LLC. On January 1 of the current year, to acquire a one-third interest in the entity, Nora contributed a parcel of land she had held for investment. (At
CL LLC is a manufacturing business and reported taxable income of $40,000,000 before interest expense, taxes, depreciation, and amortization (“tax EBITDA”), plus $1,500,000 of separately stated
Browne and Red, both C corporations, formed the BR Partnership on January 1, 2019. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR’s gross receipts were
The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2019, Jessica contributed land valued at $600,000 to the partnership in exchange for a 50%
During the current tax year, Dave and Stu formed the DS LLC with Dave contributing land with a basis of $360,000 and a fair market value of $600,000 at the contribution date. At the end of the year,
Mike and Melissa want to form the equal MM Partnership. Melissa will contribute cash of $140,000. Mike has cash of $40,000 and land (fair market value of $100,000, adjusted basis of $136,000). Mike
Penguin LLC operates a large apparel store with several employees and substantial debt. Each LLC member is active in the business and receives compensation from the LLC. The LLC invests its excess
Write an e-mail to a client describing situations in which the partnership entity form might be more advantageous (or disadvantageous) than operating as a C corporation. Use subheadings and bullet
What is the purpose of the qualified business income deduction under § 199A? How is the deduction calculated? What information does the partnership report?
On January 2 of the current year, Black acquired a 50% interest in New Partnership by contributing property with an adjusted basis of $7,000 and a fair market value of $9,000, subject to a mortgage
Describe how a partnership reports its income for tax purposes. Who makes most elections related to partnership income and deductions?What two theories underlie most partnership tax rules? As an
Sarah Liu is single, an attorney, and a U.S. citizen. Liu recently attended a seminar where she heard that she could give up her U.S. citizenship, move to Bermuda (where she would pay no income tax),
Night, Inc., a domestic corporation, earned $300,000 from foreign manufacturing activities on which it paid $36,000 of foreign income taxes. Night’s foreign sales income is taxed at a 50% foreign
Dunne, Inc., a U.S. corporation, earned $500,000 in total taxable income, including $50,000 in foreign-source taxable income from its branch manufacturing operations in Brazil and $20,000 in
Blunt, Inc., a U.S. corporation, earned $600,000 in total taxable income, including $80,000 in foreign-source taxable income from its German branch’s manufacturing operations and $30,000 in
Weather, Inc., a domestic corporation, operates in both Fredonia and the United States. This year, the business generated taxable income of $600,000 from foreign sources and $900,000 from U.S.
Brandy, a U.S. corporation, operates a manufacturing branch in Chad, which does not have an income tax treaty with the United States. Brandy?s worldwide Federal taxable income is $30,000,000; it is
Honk, Inc., a U.S. corporation, purchases weight-lifting equipment for resale from HiDisu, a Japanese corporation, for 60 million yen. On the date of purchase, 110 yen is equal to $1 U.S. (¥110:$1).
LearCo, a non-U.S. conglomerate, generates $4 billion in gross receipts annually. Its U.S. subsidiary, KingCo, accounts for $750 million of the annual gross receipts; KingCo’s average annual gross
Velocity, Inc., a foreign corporation, earned $500,000 U.S.-source income from royalties that it collected and $400,000 interest from its investment in U.S.Treasury bonds. Compute Velocity’s U.S.
By the end of 2017, Klein, a domestic corporation, had accumulated $10 million in cash from the overseas operations of its Liberia subsidiary. Klein made no distributions of these accumulated profits
Molly, Inc., a domestic corporation, generates income from the receipt of royalty income from patents that it owns. Molly wants to avoid U.S. income tax on these royalties, so it has its 100%-owned
Jerry Jeff Keen, the CFO of Boots Unlimited, a Texas corporation, has come to you regarding a potential restructuring of business operations. Boots has long manufactured its western boots in plants
Child Corporation joined the Thrust consolidated group in year 1. At the time it joined the group, Child held a $2,000,000 NOL carryforward. On a consolidated basis, the members of Thrust generated
The Giant consolidated group includes SubTwo, which was acquired as part of a § 382 ownership change. SubTwo brought with it to the group a large NOL carryforward, $3,000,000 of which is available
Determine consolidated taxable income for calendar years 1?4 for Yeti Group, which elected consolidated status immediately upon the creation of the two member corporations on January 1 of year 1. All
Continue with the facts of Problem 34.a. Assume instead that JuniorCo’s tax year 2 produced a $6 million NOL.b. Same as part (a), except that JuniorCo’s tax year 2 produced a $40 million NOL.c.
Senior, Ltd., acquires all of the stock of JuniorCo for $30 million at the beginning of year 1. The group immediately elects to file income tax returns on a consolidated basis. Senior’s operations
The Pelican Group cannot decide whether to start to file on a consolidated basis for Federal income tax purposes, effective for its tax year beginning January 1, 2020. Its computational study of the
Through a “Type A” reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli’s assets and liabilities. The VizslaCo stock was exchanged for all
On December 31, 2017, Alpha Corporation, valued at $10,000,000, acquired BetaCo when BetaCo was valued at $5,000,000. BetaCo holds a capital loss carryforward of $220,000 and excess business credits
Citron enters into a “Type C” restructuring with Ecru. Ecru transfers $800,000 of its voting stock for Citron’s $1,500,000 (basis $600,000) and $700,000 liabilities.Citron retains one asset,
Cornell purchased a 15-year, $50,000 bond from Fulvous Corporation for $20,000 eight years ago. Interest of $2,300 has been amortized over the eight years and added to Cornell’s bond basis. In the
AndyCo acquires DrewCo in a merger, becoming AndrewCo. AndyCo has $1,000,000 in positive accumulated E & P before the merger, and DrewCo has negative accumulated E & P of $400,000 before the
What is the difference between a split-up, a split-off, and a spin-off?
Nye Tools, incorporated in 2005, makes tools and devices for the automotive industry. The original shareholders were Andre (700 shares) and his brother Roscoe (300 shares). In 2010, Andre transferred
On April 23, 2019, Auk Corporation acquires 100% of the outstanding stock of Amazon Corporation (E & P of $750,000) for $1,200,000. Amazon Corporation has assets with a fair market value of
On July 20, 2018, Lilac Corporation purchased 25% of the Coffee Corporation stock outstanding. Lilac Corporation purchased an additional 40% of the stock in Coffee on March 22, 2019, and an
The gross estate of Raul, decedent, includes stock in Iris Corporation (E & P of $8,000,000) valued at $6,000,000. At the time of his death, Raul owned 60% of the Iris stock outstanding and he
On January 4, 2019, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under ? 351. The shareholder?s basis, the fair market
Olinto Corp., an accrual basis calendar year C corporation, had no corporate shareholders when it liquidated in year 12. In cancellation of all their Olinto Corp. stock, each Olinto Corp. shareholder
Generally, in a direct distribution of assets to the shareholders that results in a complete corporate liquidation:a. There is no taxable event.b. The corporation recognizes no gain or loss because
Shelly Zumaya (2220 East Hennepin Avenue, Minneapolis, MN 55413) is the president and sole shareholder of Kiwi Corporation (stock basis of $400,000). Incorporated in 2008, Kiwi Corporation’s sole
Tammy Olsen has owned 100% of the common stock of Green Corporation (basis of $75,000) since the corporation’s formation in 2009. In 2016, when Green had E & P of $320,000, the corporation
Your firm has a new individual client, Carla Navarro, who has been assigned to you for preparation of the current year’s tax return. Upon review of Carla’s tax returns from prior years, you
Yellow Corporation, a calendar year taxpayer, made estimated tax payments of $40,000 for 2019 ($10,000 per quarter). Yellow filed its Federal income tax return for 2019 reflecting a tax liability of
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2019, its second year of operation:Taxable income
Deerwood Corporation lends its principal shareholder, Lafayette, $500,000 on July 1 of the current year. The loan is interest-free and payable on demand. On December 31, the imputed interest rules
ABC Corp. paid two cash distributions during year 5. The first was $42,000, and the second was $33,000. Accumulated earnings and profits (E & P) at the end of year 4 were $10,000. Current E &
ABC Corp. paid two cash distributions during year 5. The first was $42,000, and the second was $33,000. Accumulated earnings and profits (E & P) at the end of year 4 were $80,000. Current E &
Kenny Merinoff and his son, John, own all outstanding stock of Flamingo Corporation. Both John and Kenny are officers in the corporation and, together with their uncle, Ira, comprise the entire board
In determining Blue Corporation’s current E & P for 2019, how should taxable income be adjusted as a result of the following transactions?a. A capital loss carryover from 2018, fully used in
Julio sold his corporation to a competitor, Exeter LLC, for $100,000,000. Julio incorporated his business 17 years ago by investing $500,000 plus his proprietary know-how. There have been no other
Several years ago, Minjun, who is single, acquired § 1244 stock in Blue Corporation at a cost of $60,000. He sells the Blue stock for $5,000 in the current year. Determine the amount and nature of
In January 2019, Don and Steve each invested $100,000 cash to form a corporation to conduct business as a retail golf equipment store. On January 5, they paid Bill, an attorney, to draft the
In January 2019, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of
Dove Corporation, a calendar year C corporation, had the following information for 2019:Net income per books (after-tax) $386,250Taxable income 120,000Federal income tax per books 25,200Cash dividend
The following information for 2019 relates to Sparrow Corporation, a calendar year, accrual method taxpayer:Net income per books (after-tax)
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M–1 for 2019:Net income per books (after-tax)
Grouse Corporation, a calendar year C corporation, had taxable income of $1,400,000, $1,200,000, and $700,000 for 2017, 2018, and 2019, respectively. Grouse has taxable income of $1,600,000 for 2020.
In each of the following independent situations, determine the corporation’s income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved
Egret Corporation, a calendar year C corporation, was formed on March 6, 2019, and opened for business on July 1, 2019. After its formation but prior to opening for business, Egret incurred the
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2019. Gull incurred the following expenses during its first year of operations (November 1,
During the current year, Swallow Corporation, a calendar year C corporation, has the following transactions:Income from operations ..........................................$660,000Expenses from
Julieta Simms is the president and sole shareholder of Simms Corporation (a cash method, calendar year C corporation), 1121 Madison Street, Seattle, WA 98121. Julieta plans for the corporation to
In 2019, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2014. Gray is contemplating a gift of land to a qualified charity in
Joseph Thompson is president and sole shareholder of Jay Corporation (a cash method, calendar year C corporation). In December 2019, Joe asks your advice regarding a charitable contribution he plans
Heron Company purchases commercial realty on November 13, 2001, for $650,000. Straight-line depreciation of $287,492 is claimed before the property is sold on February 22, 2019, for $850,000. What
During 2019, Gorilla Corporation, a calendar year C corporation, has net shortterm capital gains of $15,000, net long-term capital losses of $105,000, and taxable income from other sources of
Jonathan owns 100% of Lemon Company (a calendar year entity). In the current year, Lemon recognizes a long-term capital gain of $70,000 and no other income (or loss). Jonathan is in the 37% tax
Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the remaining 49%. Each shareholder is employed by the
Juan, an attorney, is the sole shareholder of Carmine Corporation, a C corporation and professional association. The corporation paid Juan a salary of $336,000 during its fiscal year ending September
Torsten owns 100% of Taupe Corporation (a calendar year corporation), which had net operating income of $420,000 and long-term capital gain of $30,000 in the current year. Torsten has significant

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