South Western Federal Taxation 2018 Essentials Of Taxation Individuals And Business Entities 21st Edition William A. Raabe, James C. Young, Annette Nellen, David M. Maloney - Solutions

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A corporation has operating income of $75,000. What is its taxable income if it receives a $20,000 dividend from another corporation in which it has the following ownership? a. 10% b. 65% c. 90%
The Crane Corporation issues $1,500,000 in bonds with a 7.5 percent interest rate. If its marginal tax rate is 35 percent, what is its after-tax cost of the debt?
A corporation has taxable income of $1,500,000. If it distributes its after-tax income to its shareholders whose dividend tax rate is 15 percent, what are the total tax and the combined effective tax rate on corporate income?
Palmdale Corporation has a regular tax liability of $94,000. It is eligible for a $54,000 general business credit for the current year and has a $30,000 general business credit carryover from the prior year. What is Palmdale's allowable general business credit for the current year? What is its
Jenkins Corporation had $675,000 of taxable income last year and $575,000 this year. What is the minimum amount that it must submit for each estimated quarterly tax payment to avoid any penalty for underpayment?
Carrie received 10 shares of Collie common stock as a 10 percent dividend on the 100 common shares she currently owns. She paid $4,400 for the original shares. If she sells the 10 shares that she just received for $800, what is her gain or loss on the sale?
Clarington Corporation, a calendar year taxpayer, has 2 shareholders, Adam and Eve. Adam owns 40 percent and Eve 60 percent of the corporation's stock. In each of the following situations, determine how the dividends will be taxed to Adam and Eve and if the corporation has any tax consequences. a.
The owner of a corporation used corporate funds to pay for his home, all the home's expenses, and numerous other personal expenses. This went on for a number of years until the corporation was audited. The IRS asserted that the use of the corporate funds for personal purposes was a constructive
Locate and read Section 385 of the Internal Revenue Code and develop a comprehensive list of factors that indicate legitimate debt. What is the status of the regulations that are to expand on this Code section?
Several years ago, Congress repealed the General Utilities Doctrine. Locate and read General Utilities & Operating Co. v Helvering, 296 U.S. 200 (1935). Summarize this case. What was the General Utilities Doctrine, and how did its repeal affect current transactions?
Locate and read Internal Revenue Code Sections 267, 318, and 544. Compare the definition of family in each of these sections.
June owned all the stock of Corporation A. Over the years, the corporation had been very successful but had never paid any dividends, although it had substantial earnings and profits. June wanted to expand into another line of business as a sole proprietor but did not have the cash to do so. June
What is the unextended due date for the income tax return of a corporation whose fiscal year ends on February 28? What is its extended due date? In what months must it make estimated payments for the next tax year?
What is the purpose of corporate earnings and profits? Why isn't taxable income used to determine if a distribution is a dividend? Discuss.
Why do the basis and at-risk rules usually prevent the same amount of losses from passing through to shareholders of S corporations?
What is the purpose of the accumulated adjustments account if the S corporation has always been an S corporation?
What is the income limit for claiming a passive loss deduction under the passive activity real property business exception to material participation?
The BDC Partnership has three partners with the following partnership interest percentages and tax-year ends: B has 35 percent ownership and a Dec. 31 year end; D owns 45 percent and has a June 30 year end; and C owns 35 percent and has an Oct. 30 year end. What method must be used to determine the
John received a proportionate nonliquidating distribution of $10,000 cash and inventory with a zero basis and a fair market value of $12,000 from a partnership in which he has a basis of $8,000. a. What are the tax effects of these distributions? b. How would your answer change if this was a
Quenton received a proportionate nonliquidating distribution of $8,000 cash, inventory with a $5,000 basis and a fair market value of $7,000, and a Section 1231 asset with a $7,000 basis and a fair market value of $15,000. a. What are the tax effects of these distributions if his partnership basis
The ABC Partnership makes a proportionate nonliquidating distribution to one of its partners of two Section 1231 assets. Asset A has a basis of $40,000 and a fair market value of $15,000; Asset B has a basis of $30,000 and a fair market value of $20,000. If the partner's outside basis in his
National Partnership makes a proportionate nonliquidating distribution toone of its partners of two Section 1231assets. Asset X has a basis of $40,000 and a fair market value of $15,000; Asset B has a basis of $20,000 and a fair market value of $10,000. The partner's outside basis in the
Capital Partnership makes a proportionate liquidating distribution to one of its partners of $5,000 cash, $6,000 inventory (FMV = $10,000), and land with a $20,000 basis and an $11,000 fair market value. What are the tax consequences to the partner of this liquidating distribution if his
Alexandra received a $40,000 cash liquidating distribution for her 25 percent interest in ABC Partnership that had a $62,500 outside basis. Immediately prior to the distribution, the partnership had the following assets: $30,000 cash, unrealized receivable (zero basis, $60,000 fair market value),
Walter sells his 40 percent interest in Kennel Kids Playground with a partnership basis interest of $40,000 to George for $60,000. The partnership has the following assets: Cash = $50,000, inventory ($20,000 basis, $60,000 fair market value), and land ($30,000 basis; $40,000 fair market value).
The Rents-Are-Us Partnership owns a large apartment building with a fair market value of $2,100,000, a basis of $1,600,000, and a mortgage encumbering it of $500,000. Kenneth sells his 20 percent interest in the partnership with an outside basis of $350,000 to Charlie for $450,000 cash and the
Refer to the information in the preceding problem. If the partnership sells the land for $27,000 after holding it for three years, what are the tax consequences to Alpha, Beta, and Gamma?Information from preceding problem
Bob is a 50 percent owner of Barco Enterprises. During 2016, Barco earned $80,000 in net income after subtracting Bob's $50,000 salary. Bob also withdrew $20,000 from Barco during the year. Bob would like to know the amount of the FICA taxes and by whom they would be paid if a. Barco is a general
Explain the difference between the effects of liabilities of an S corporation on a shareholder's stock basis and the effect of liabilities of a partnership on a partner's partnership interest basis.
Alfred has investments in three passive activities: In year 1, PA-1 had a gain of $3,000, PA-2 had a loss of $10,000, and PA-3 had a loss of $5,000. In year 2, PA-1 has a gain of $12,000, PA-2 has a $1,000 loss, and PA-3 has a loss of $2,000. How should Alfred treat the year 1 results from these
On March 15, 2014, James Smith formed a business to rent and service vending machines providing healthy snack alternatives and juices to the local middle and high schools. He operates the business as a sole proprietorship from his home, turning the den into an office from which he manages the
Explain the difference between the entity and aggregate theories applicable to a partnership and give an example of the effect of these theories on partnership transactions.
Roberta Wynn has been a partner in the Cato Partnership for a number of years. With the permission of the other partners, she sells her partnership interest to a third party. At the time of sale, her basis in her partnership is only $100. For the portion of the year to the date of sale, she is
The partners of JPG Partnership want to change the form of entity from a partnership to a corporation. The corporation can be formed in several ways: The partnership can distribute the assets to the partners who then contribute the assets to the corporation. The partnership can transfer the assets
Explain the difference between inside and outside basis for partners and the partnership.
What is the difference between a partner's guaranteed payment and his salary?
What is the lifetime unified credit for 2016 and its related exclusion equivalent?
How is the value of estate property determined and what is the alternate valuation date?
Contrast the difference in bases for an appreciated asset that is given as a gift versus one that is inherited.
How is the net investment income surtax calculated for a trust? Explain how a trust can avoid this tax.
John gave $30,000 to each of his 10 grandchildren this year. Lisa, his wife, made no gifts during the year. a. How much are John's taxable gifts if gift splitting is not elected? b. How much are John's taxable gifts if gift splitting is elected?
Cindy, an 18-year-old full-time student, has $3,400 interest income from a trust established by her grandparents. Cindy also earned $6,000 working at a part-time job. She lives at home with her parents and has no itemized deductions. Cindy's parents are in the 33 percent marginal tax bracket. a.
Jessica owns investment land currently worth $5,000,000. She paid $3,000,000 for the land 10 years ago. She expects that the land will probably increase in value to at least $8,000,000 before she dies. She has not previously given any taxable gifts. a. If Jessica gives the land to her son now, what
Steven had a taxable estate of $8,850,000 when he died in 2016. If he had no prior taxable gifts, what is his net estate tax liability?
Sondra and Jason, a wealthy married couple, won $96 million in a 2016Powerball drawing. They decided to share some of this new wealth immediately with some of their friends and family. They paid $1,800,000 on a new home for Sondra's parents, titling the home jointly in the parents' names; bought a
Julie had a gross estate of $7 million when she died in 2016. Her funeral expenses were $26,000; her administrative expenses were $30,000; her charitable deduction was $350,000; and her marital deduction was $600,000. She made no prior taxable gifts. What is her net estate tax liability?
Your client, Ted, would like your assistance in selecting one of the following assets to give to his 16-year-old daughter.The corporate stock pays only $100 in dividend income each year but has doubled in value since Ted purchased it three years ago. The S corporation has generated a profit of
When Godfrey died in 2016, his assets were valued as follows: Asset Date of Death Valuation Valuation Six Months
Oscar (age 70) and Maggie (age 60) were married and jointly owned a personal residence valued at $3,800,000 when Oscar died in 2016. Oscar also owned stocks valued at $4,700,000; an art collection valued at $1,400,000; a retirement account valued at $900,000 (contributions were entirely from pretax
Two years ago, Herbert, a widower, made a gift of marketable securities to his 35-year-old daughter, Sabrina, on which he paid a federal gift tax of $3 million. When Herbert died in 2016,his estate had been greatly reduced in value due to his having given away most of his assets over his lifetime.
Samantha is a single parent providing the sole support for her six-year-old daughter, Hillary. They live in an area where the public school is known to have problems with drugs and other crimes. Samantha wants to send Hillary to a private school to avoid these problems and provide a better
Explain the basic provisions of the Coverdale Education Savings plan.
Ashley runs a small business in Boulder, Colorado, that makes snow skis. She expects the business to grow substantially over the next three years. Because she is concerned about product liability and is planning to take the company public in year 2, she currently is considering incorporating the
Discuss the probable non-revenue justifications for each of the following aspects of the tax law. a. A tax credit is allowed for amounts spent to furnish care for minor children while the parent works. b. Deductions for interest on home mortgage and property taxes on one's personal residence. c.
Jang, a resident of Washington (which imposes a general sales tax), goes to Oregon (which does not impose a general sales tax) to purchase his automobile. Will Jang successfully avoid the Washington sales tax? Explain.
Discuss the application of a general sales tax. a. Do all states impose a general sales tax? b. Does the Federal government impose a general sales tax?
Locate the following Code citations, and list the subchapter, part, and subpart in which it is located. Then give a brief topical description of each. a. § 708 (a). b. § 1371 (a). c. § 2503 (a).
Mini, in Problem 12, reports $800,000 of pretax book net income in 2017. For that year, Mini did not deduct any bad debt expense for book purposes but did deduct $15,000 in bad debt expense for tax purposes. Mini records no other temporary or permanent differences. Assuming that the U.S. tax rate
Using the facts of Problem 14, determine the following. a. The 2017 end-of-year balance in Mini's deferred tax asset and deferred tax liability balance sheet accounts. b. The cost to Mini of the deferral of the bad debt deduction, considering the time value of money. Mini earns an after-tax rate
Ion Corporation reports an income tax expense/payable for book purposes of $200,000 and $250,000 for tax purposes. According to Ion's management and financial auditors, Ion only will be able to use $30,000 of any deferred tax asset, with the balance expiring unused. Determine the amount of Ion's
Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reported no other temporary or permanent book-tax differences. The pertinent U.S. tax rate is 35%, and Prance
Ovate, Inc., earns $140,000 in book income before tax and is subject to a 35% marginal Federal income tax rate. Ovate records a single temporary difference: Warranty expenses deducted for book purposes are $8,000, of which only $2,000 are deductible for tax purposes. There have been no book-tax
Prance, in Problem 3, reports $600,000 of pretax book net income in 2017. Prance's book depreciation exceeds tax depreciation that year by $20,000. Prance reports no other temporary or permanent book-tax differences. Assuming that the pertinent U.S. tax rate is 35%, compute Prance's total income
Using the facts of Problem 10, determine the following. a. The 2017 end-of-year balance in Prance's deferred tax asset and deferred tax liability balance sheet accounts. b. The value to Prance of the accelerated tax deduction for depreciation, considering the time value of money. Prance earns an
Mini, Inc., earns pretax book net income of $750,000 in 2016. Mini deducted $20,000 in bad debt expense for book purposes. This expense is not yet deductible for tax purposes. Mini records no other temporary or permanent differences. Assuming that the pertinent U.S. tax rate is 35%, compute Mini's
Zhong is considering three alternative investments of $10,000. Zhong is in the 25% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be sold at the end of five years. The alternatives are: • A taxable corporate bond
Al is a physician who conducts his practice as a sole proprietor. During 2017, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2016. At the end of 2017, Al held accounts receivable of $60,000, all for services rendered in 2017. In
Selma operates a contractor's supply store. She maintains her books using the cash method. Selma wants to know whether the accrual basis of accounting would be preferable for her business. At the end of the year, Selma's accountant computes her accrual basis income that is used on her tax return.
Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2017, the company repaired Samuel Mosley's car and charged him $1,000. Samuel did not think the problem had been fixed, so he refused to pay; thus, Trip refused to
Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effects of each of the following transactions on the company's 2017 gross income assuming that the company uses any available options to defer its taxes. a. In December 2016, the company
Laura recently was diagnosed with cancer and has begun chemotherapy treatments. A cancer specialist has given Laura less than one year to live. She has incurred sizable medical bills and other general living expenses and is in need of cash. Therefore, Laura is considering selling stock that cost
Basu, who was experiencing financial difficulties, adjusted his debts as follows. Determine the Federal income tax consequences from these events. a. Basu is an attorney. Basu owed his aunt Veena $25,000. Veena told Basu that if he serves as the executor of her estate, Basu's debt will be canceled
How does the tax benefit rule apply in the following cases? a. In 2015, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange's cost of the furniture was $600. In 2016, Orange took a bad debt deduction for the $1,000 because Sammy would not pay
Brad is the president of the Yellow Corporation. He and other members of his family control the corporation. Brad has a temporary need for $50,000, and the corporation has excess cash. He could borrow the money from a bank at 5%, when Yellow is earning 3% on its temporary investments. Yellow has
Apply the imputed interest rules in the following situations. a. Mike loaned his sister Shonda $90,000 to buy a new home. Mike did not charge interest on the loan. The Federal rate was 4%. Shonda earned $900 of investment income for the year. b. Mandeep's employer maintains an emergency loan fund
Rodrigo buys wrecked cars and stores them on his property. Recently, he purchased a 1990 Ford Taurus for $400. If he can sell all of the usable parts, his total proceeds from the Taurus will be over $2,500. As of the end of the year, he has sold only the radio for $75, and he does not know how
Glenda, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Glenda pays $8,400 rent on April 1, 2017, for the 12 months ending March 31, 2018. a. How much is Glenda's deduction for rent expense in 2017? b. Assume the same facts, except that the
Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2017. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Expense __________________________________________________ Payment Date Rental of coliseum ......................... $ 25,000
The Robin Corporation is owned as follows: Isabelle .......................................................... 26% Peter, Isabelle's husband ..................................... 19% Sonya, Isabelle's mother ..................................... 15% Reggie, Isabelle's father
Lupe, a cash basis taxpayer, owns 55% of the stock of Jasper Corporation, a calendar year accrual basis C corporation. On December 31, 2017, Jasper accrues a performance bonus of $100,000 to Lupe that it pays to him on January 15, 2018. In which year can Jasper deduct the bonus? In what year must
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 corporation at an annual salary of $240,000. During 2017, Broadbill paid each shareholder-employee
Egret Corporation, a calendar year C corporation, was formed on March 6, 2017, and opened for business on July 1, 2017. After its formation but prior to opening for business, Egret incurred the following expenditures: Accounting .................................................. $ 7,000 Advertising
Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2017. Blue had the following expenses in connection with the project:The new product will be introduced for sale beginning in July 2019. Determine the amount of the deduction for research
Sarah Ham, operating as a sole proprietor, manufactures printers in the United States. For 2017, the proprietorship has QPAI of $400,000. Sarah's modified AGI was $350,000. The W-2 wages paid by the proprietorship to employees engaged in the qualified domestic production activity were $60,000.
In 2017, Rose, Inc., has QPAI of $4 million and taxable income of $3 million. Rose pays independent contractors $500,000. Rose's W-2 wages are $600,000, but only $400,000 of the wages are paid to employees engaged in qualified domestic production activities. a. Calculate the DPAD for Rose, Inc.,
Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2017. Stanford incurred the
In 2017, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2012. Gray is contemplating a gift of land to a qualified charity in either 2017 or 2018. Gray purchased the land as an investment five years ago for $100,000 (current
Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the corporation donate Jaybird Corporation stock,
On December 23, 2017, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is made on April 14, 2018. Can Partridge deduct the charitable contribution in 2017? Explain.
Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2017, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the University of Maine, a qualified public charity. Joe is considering the following alternatives as charitable
On November 4, 2015, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2015 and 2016, respectively, Blue took $642 and $5,128 of cost recovery. These amounts were incorrect; Blue applied the wrong percentages (i.e., those for 39-year
Juan, a sole proprietor, acquires a new 5-year class asset on March 14, 2017, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179. Juan does not claim any available additional first-year depreciation. On July 15, 2018, Juan sells
Debra acquired the following new assets during 2017:Date _________________ Asset ____________ CostApril 11 .................. Furniture .............. $40,000July 28 ..................... Trucks ................ 40,000November 3 ............ Computers .............. 70,000Determine Debra's cost
On May 5, 2017, Christy purchased and placed in service a hotel. The hotel cost $10.8 million. Calculate Christy's cost recovery deductions for 2017 and for 2027?
Janice acquired an apartment building on June 4, 2017, for $1.6 million. The value of the land is $300,000. Janice sold the apartment building on November 29, 2023. a. Determine Janice's cost recovery deduction for 2017. b. Determine Janice's cost recovery deduction for 2023?
Sandstorm Corporation decides to develop a new line of paints. The project begins in 2017. Sandstorm incurs the following expenses in 2017 in connection with the project: Salaries ............................................... $85,000 Materials ..............................................
Olga is the proprietor of a small business. In 2017, the business's income, before consideration of any cost recovery or § 179 deduction, is $250,000.Olga spends $610,000 on new 7-year class assets and elects to take the § 179 deduction on them. She does not claim any available additional
On June 5, 2016, Javier Sanchez purchased and placed in service a 7-year class asset costing $550,000 for use in his landscaping business, which he operates as a single member LLC (Sanchez Landscaping LLC). During 2016, his business generated a net income of $945,780 before any § 179 immediate
On October 15, 2017, Jon purchased and placed in service a used car. The purchase price was $25,000. This was the only business-use asset Jon acquired in 2017. He used the car 80% of the time for business and 20% for personal use. Jon used the MACRS statutory percentage method. Calculate the total
On June 5, 2016, Leo purchased and placed in service a new car that cost $20,000. The business-use percentage for the car is always 100%. Leo claims any available additional first-year depreciation. Compute Leo's cost recovery deduction for 2016 and 2017?

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South Western Federal Taxation 2018 Essentials Of Taxation Individuals And Business Entities 21st Edition William A. Raabe, James C. Young, Annette Nellen, David M. Maloney - Solutions

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