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Questions and Answers of
Business Law
On September 3, 2016, Federal Corporation's warehouse is totally destroyed by fire. $800,000 of insurance proceeds are received, and the realized gain is $300,000. Whenever possible, Federal elects
During 2016, Will gives $40,000 cash to Will, Jr. and a remainder interest in a few acres of land to his friend Suzy. The remainder interest is valued at $32,000. Will and his wife, Helen, elect gift
Mr. and Mrs. Rusbarsky purchased a residence on June 12, 2013, for $200,000. On March 12, 2016, they sell the residence for $300,000, and selling expenses amount to $11,000. They purchase another
In 2016, Homer and his wife, Wilma (residents of a non- community property state) make the gifts listed below. Homer's previous taxable gifts consist of $100,000 made in 1975 and $1.4 million made in
In 2016, Henry and his wife, Wendy, made the gifts shown below. All gifts are of present interests. What is Wendy's gift tax payable for 2016 if the couple elects gift splitting and Wendy's previous
In June 2015, Karen transferred property with a $75,000 FMV and a $20,000 adjusted basis to Hal, her husband. Hal dies in March 2016; the property has appreciated to $85,000 in value by then. His
In 2016, Ginger Graham, age 46 and wife of Greg Graham, engaged in the transactions described below. Determine Ginger's gift tax liability for 2016 if she and Greg elect gift splitting and Greg gave
Janet Mason filed a 2013 gift tax return to report the gift on June 3, 2013, of closely held stock in Mason Meat Co., Inc. The tax return, which your firm prepared, reflected a value of $1,500 per
Consult the case Estate of Edward S. Redstone, 145 T.C. No. 11 (2015), a rather complicated case, and answer the following uncomplicated questions:a. When did the alleged gift occur, and when did the
Annie James died early in 2016. All her property passed subject to her will, which provides that her surviving husband, Dave James, is to receive all the property outright. Her will further states
Jeung Hong, a widower, died in March 2016. His gross estate was $6.5 million and, at the time of his death, he owed debts of $60,000. His will made a bequest of $200,000 to his undergraduate alma
Beth died on May 3, 2016. Her executor elected date-of-death valuation. Beth's gross estate included, among other properties, the items listed below. What is the estate tax value of each item? a.
Mary died on April 3, 2016. As of this date, Mary's gross estate was valued at $6.5 million. On October 3, Mary's gross estate was valued at $5.8 million. The estate neither distributed nor sold any
Sue died on May 3, 2016. On October 1, 2013, Sue gave Tom land valued at $7,014,000. Sue applied a unified credit of $2,045,800 against the gift tax due on this transfer. On Sue's date of death the
Val died on May 13, 2016. On July 3, 2013, she gave a $400,000 life insurance policy on her own life to son Ray. Because the value of the policy was relatively low, the transfer did not cause any
In December 2013, Jody transferred stock having an $8,114,000 FMV to her daughter Joan. Jody paid $1,140,000 ($3,185,800 - $2,045,800) of gift taxes on this transfer. When Jody died in January 2016,
At the beginning of 2016, Silver Corporation has a $95,000 capital loss carry forward from 2015. During 2016, the corporation sells land, held for four years, and realizes an $80,000 gain. Silver has
John died in 2016. What amount, if any, was included in his gross estate in each of the following situations: a. In 1997, John created a revocable trust, funded it with $400,000 of assets, and named
In December 2013, Curt and Kate elected gift splitting to report $16,228,000 of gifts of stocks Curt made. Each paid gift taxes of $1,140,000 by spending his or her own funds. Kate died in January
Arnie, a college student, purchased a truck in 2014 for $6,000. He used the truck 70% of the time as a distributor for the local newspaper and 30% of the time for personal use. The truck has a
Joy died on November 5, 2016. Soon after Joy's death, the executor discovered the following insurance policies on Joy's life.Joy transferred ownership of policies 757 and 848 to her son in 2009. She
Refer to Problem C:13-45. What is the net addition to Joy's taxable estate with respect to the insurance policies listed above if all the property passing under Joy's will was left to Joy's son?Refer
When Yuji died in March 2016, his gross estate was valued at $8 million. He owed debts totaling $300,000. Funeral and administration expenses were $12,000 and $120,000, respectively. The marginal
Sam Snider died February 14, 2015, survived by his spouse Janet and several children. Sam had not made any taxable gifts. Sam's gross estate was $7 million. In each of the following independent
Will, a bachelor, died in 2016. At that time, his sole asset was cash of $6 million. Assume no debts or funeral and administration expenses and no charitable bequests. His gift history was as
Bess, a widow, died in October 2016. Her gross estate, which totaled $7 million, included a $100,000 life insurance policy on her life that she gave away in 2014. The taxable gift that arose from
Martinez died in 2016, survived by her spouse, Sergio, and two adult children. Her gross estate, all of which passed under her will, was valued at $7.2 million. She had Sec. 2053 deductions of
Joseph Jernigan died in 2016 with a taxable estate of $4.1 million. He was survived by his spouse Josephine and several children. He made taxable gifts of $100,000 in 1974 and $650,000 in 2000. The
Elaine died on May 1, 2016. Her gross estate consisted of the following items: Cash .................................................................. $ 40,000 Stocks traded on a stock exchange
Giovanni died in 2016 with a gross estate of $6.9 million and debts of $30,000. He made post-1976 taxable gifts of $100,000, valued at $80,000 when Giovanni died. His estate paid state death taxes of
Bonnie died on June 1, 2016, survived by her husband, Abner, and two sons, Carl and Doug. Bonnie's only lifetime taxable gift was made in October 2013 in the taxable amount of $6.25 million. She did
Gaylord Gunnison (GG) died January 13, 2016, and his gross estate consisted of three properties-cash, land, and stock in a public company. The amount of cash on the date of his death was $2.9
Matt Patterson died in early 2016 with a $4.5 million gross estate and no deductions other than a potential marital deduction. He bequeathed all his property to his spouse, Nancy, with the provision
In 2010, Jack purchased undeveloped oil and gas property for $900,000 and paid $170,000 for intangible drilling and development costs. He elected to expense the intangible drilling and development
Arthur Zolnick died at age 84 on June 7, 2015. In March 2008, he transferred $4 million of stock to a charitable remainder annuity trust (CRAT) from which he named himself to receive $200,000 per
Sam and Taylor, residents of New Jersey, entered into a domestic partnership in New Jersey in October 2004. However, they never obtained a marriage license. Sam died in March 2016, survived by
What is the amount of the personal exemption for trusts and estates?
Art Rutter sold an apartment building in May 2016 for a small amount of cash and a note payable with payments beginning in 2017. Principal and interest payments are due annually on the note in April
Suellen Symmes died on January 15, 2016. Her estate elected a November 30 year end. The executor projects that the estate will receive interest income of $50,000 by November 30, 2016, and will have
Refer to Problem C:14-42. How would your answer change if instead the trust were a complex trust that makes no distributions in 2015 and 2016? Assume the trust earns $8,000 of corporate bond interest
Holly funded the Holly Marx Trust in January 2016. The entire trust income is payable to her adult son, Jack for 20 years. At the end of the twentieth year, the trust assets are to pass to Holly's
List some common examples of principal and income items under the Uniform Act.
Joan died April 17, 2015. Joan's executor chose March 31 as the tax year end for the estate. The estate's only beneficiary, Kathy, reports on a calendar year. The executor of Joan's estate makes the
Dana Dodson died October 31, 2015, with a gross estate of $6.7 million, debts of $200,000, and a taxable estate of $6.5 million. Dana made no taxable gifts. All of her property passed under her will
Cate Cole died in 2014, and her will left her entire estate in equal shares to her two adult children, Calvin and Corrine. Both children anticipate being in the top income tax bracket for at least
A client asks about the relevance of state law in classifying items as principal or income. Explain the relevance.
A client, Sam Curren, established the Curren Trust earlier this year. In addition to stocks and cash, the trust's assets include a life insurance policy on the life of Mr. Curren. The trust is both
Barbara was divorced two years ago. However, the final property settlement and determination of alimony payments was not made until February 2016 because of extended litigation. Barbara received a
Refer to Question C:14-7. Which taxpayer (the trust, Irene, or Beth) pays the tax on the gain? Question C:14-7 A trust instrument provides that, for life, Irene is entitled to receive distributions
Refer to the preceding problem. Assume that Ed expects his income for this year to decline and his tax liability for this year to be only $15,000. What minimum amount of estimated taxes should Ed pay
The IRS audits Tan's individual return for the current year and assesses a $9,000 deficiency, $2,800 of which results from Tan's negligence. What is the amount of Tan's negligence penalty? Does the
The IRS notifies Tom that it will audit his current year return for an interest deduction. The IRS audited Tom's return two years ago for a charitable contribution deduction. The IRS, however, did
Where can a researcher find newly issued Proposed, final, and Temporary Regulations?
Why is personal saving desirable for the U.S. economy?
What purpose is served by allowing a deduction for contributions to qualified charitable organizations?
Savings leads to capital formation and thus makes funds available to finance home construction and industrial expansion. What is a major tax law incentive to encourage savings?
How does the tax law encourage the development of natural resources?
Assume the same facts as in Problem 37, except that Clear incurred only $255 (not $300) in production costs. a. What is Clear's DPGR per unit? Its QPAI? b. How could this result have been avoided?
For 2016, Gold Corporation (a calendar year business) had the following transactions:Taxable income...................................................................... $4,200,000Accelerated
For 2016, Silver Corporation (a calendar year business) incurred the following transactions:Taxable income...................................................................... $3,950,000Accelerated
In a § 351 transfer, Grebe Corporation receives property in exchange for stock. Will Grebe's holding period for the property be the same as the shareholder's holding period for the stock? Explain.
Can gain ever be recognized in a § 351 transfer if boot is not received? Explain.
In January 2016, Wanda transferred machinery worth $200,000 (basis of $30,000) to a controlled corporation, Oriole, Inc., in a transfer that qualified under § 351. Wanda had deducted depreciation on
In determining Blue Corporation's current E & P for 2016, how should taxable income be adjusted as a result of the following transactions? a. A capital loss carryover from 2015, fully used in
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
For purposes of the related-party loss limitation within the context of a complete liquidation of a corporation, what is the definition of disqualified property?
Derk owns 250 shares of stock in Rose Corporation. The remaining 750 shares of Rose are owned as follows: 150 by Derk's daughter; 200 by Derk's aunt; and 400 by a partnership in which Derk has an 80%
On January 4, 2016, Martin Corporation acquires two properties from a shareholder in a transaction that qualifies under § 351. The shareholder's basis, the fair market value, and the built-in
Blush Corporation owns long-term bonds (basis of $1.3 million) of its subsidiary, Brass Corporation, that were acquired at a discount. Upon liquidation of Brass pursuant to § 332, Blush receives a
If a redemption is treated as a dividend ("nonqualified stock redemption"), what happens to the basis of the stock redeemed?
On July 22, 2015, Lilac Corporation purchased 25% of the Coffee Corporation stock outstanding. Lilac Corporation purchased an additional 40% of the stock in Coffee on March 25, 2016, and an
On April 29, 2016, Auk Corporation acquires 100% of the outstanding stock of Amazon Corporation (E & P of $750,000) for $1.2 million. Amazon Corporation has assets with a fair market value of $1.4
TriStateCo, an Idaho corporation, has operated landfills in Washington (WA), Idaho (ID), and Oregon (OR) for the past 20 years. The states are changing their environmental laws governing landfills,
On December 31, 2015, Alpha Corporation, valued at $10 million, acquired BetaCo when BetaCo was valued at $5 million. BetaCo holds a capital loss carryforward of $220,000 and excess business credits
Ten years ago, Xio and Xandra each invested $300,000 to create Xava Corporation. Xava develops and manufactures rock climbing and bungee jumping equipment. The business has become very profitable (it
Explain what a corporation is trying to accomplish when using a "Type E" reorganization. When using a "Type F" reorganization.
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 2009, Andre transferred
Hawaii Corporation, which is owned equally by two brothers and their younger sister, has been in the business of growing coffee and onions for the last 10 years. Lately, the brothers have been
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, 2016. Its computational study of the
Indeco, a U.S. C corporation, operates Grange, a sales branch in Staccato. Indeco's U.S. corporate marginal tax rate is 35%; it is 20% for Staccato. Grange's pre-tax profit for the year is $1
ForCo, a foreign corporation not engaged in a U.S. trade or business, received a $600,000 dividend from USCo, a domestic corporation. ForCo incurred $45,000 in expenses related to earning the
ForCo, a foreign corporation not engaged in a U.S. trade or business, received a $250,000 dividend from USCo, a domestic corporation. ForCo incurred $40,000 in expenses related to earning the
ForCo, a foreign corporation not engaged in a U.S. trade or business, received an $800,000 dividend from USCo, a domestic corporation. ForCo incurred $75,000 in expenses related to earning the
During 2017, the Tastee Partnership reported income before guaranteed payments of $92,000. Stella owns a 90% profits interest and works 1,600 hours per year in the business. Euclid owns a 10% profits
On June 1 of the current tax year, Elisha and Ezra (who are equal partners) contribute property to form the Double E Partnership. Elisha contributes cash of $200,000. Ezra contributes a building and
In 2016, Tom and Missy form TM Partnership, Ltd. (an LLLP), to own and operate certain real estate. Tom contributed land, and Missy contributed cash to be used for setting up the entity and creating
In 2016, Ryce contributes non-depreciable property with an adjusted basis of $60,000 and a fair market value of $95,000 to the Montgomery Partnership in exchange for a one-half interest in profits
In 2015, Dudley contributed land to the Prosperity LLC. His basis in the land was $100,000. The fair market value at the contribution date was $115,000. In 2016, the LLC distributes other property
On December 31, 2016, Yong sells his 10% interest in Catawissa LLC to Mei for $17,500. Yong is a calendar year taxpayer. Catawissa owns no hot assets, and its tax year ends on September 30. On
Jerome's basis in his partnership interest is $50,000. Jerome receives a pro rata liquidating distribution consisting of $10,000 cash, land with a basis of $40,000 and a fair market value of $60,000,
In 2013, 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 2016, the partnership
The December 31, 2016, balance sheet of the GAB LLP reads as follows:Capital is not a material income-producing factor for the LLP. Gina is an active (general) partner and owner of a 25% interest in
TAN LP was formed in 2004 as a limited partnership by a corporate general partner and nine individual limited partners to own and operate rental real estate. The LP originally acquired commercial
On January 1, Kinney, Inc., an S corporation, reports $4,000 of accumulated E & P and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and Frank, each of whom owns 500 shares of
McLin, Inc., is a calendar year S corporation. Its AAA balance is zero. a. McLin holds $90,000 of AEP. Tobias, the sole shareholder, has an adjusted basis of $80,000 in his stock. Determine the tax
Caleb Samford calls you and says that his two-person S corporation was involuntarily terminated in February 2015. He asks you if they can make a new S election now, in November 2016. Draft a memo for
BuildCo, Inc., a domestic C corporation, has used ASC 740-30 (APB 23) to avoid reporting any U.S. deferred tax expense on $100 million of the earnings of BuildCo's foreign subsidiaries. All of these
Using the facts of Problem 16, determine the 2017 end-of-year balance in Prance's deferred tax asset and deferred tax liability balance sheet accounts?
Parent, a domestic corporation, owns 100% of Block, a foreign corporation, and Chip, a domestic corporation. Parent also owns 45% of Trial, a domestic corporation. Parent receives no distributions
Based on the facts and results of Problems 33-39, provide the income tax footnote rate reconciliation for Relix?
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