Questions and Answers of South-Western Federal

On April 23, 2021, 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 December 1, year 1, Ash Co. and Leigh Co. entered into a merger agreement under which Ash Co. agreed to acquire Leigh Co. in a “Type A” reorganization. The purpose of the merger was to benefit
On January 1, Keyri Corporation and Worivo Corporation sign a binding agreement to merge on September 1. Under the agreement, Worivo shareholders are to receive 120,000 shares of Keyri Corporation
Redden Co. is a closely held C corporation that owns seven large pieces of property in southern Illinois. The corporation is equally owned by three cousins who acquired the stock from their
Your client, Paul, owns a one-third interest as a managing (general) partner in the service-oriented PRE LLP. He would like to retire from the limited liability partnership at the end of 2022 and
Along with specific requirements in the Code, what four general requirements (coming from court decisions) must be met for a reorganization to receive tax-free status?
In the context of a tax reorganization, what is the difference between a splitup, a spin-off, and a split-off?
How could the step transaction doctrine cause problems in putting together a “Type C” reorganization?
Explain the § 382 limitation as it applies to NOL carryovers utilized by successor corporations.
Brad is the majority shareholder of BR Corporation, a family-owned company. The corporation has two different businesses: a shoe store and an ice cream shop. Andrew manages the shoe store, and
A binding contract between the IRS and the taxpayer with which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its return consistent with the
Manuel and Melissa want to form the equal MM Partnership. Melissa will contribute cash of $140,000. Manuel has cash of $40,000 and land (fair market value of $100,000, adjusted basis of $136,000).
The Parakeet Partnership was formed on August 1 of the current year and admitted Morlan and Merriman as equal partners on that date. The partners both contributed $300,000 of cash to establish a
Bangle Supplies, Inc. (a U.S. corporation), is a wholesale distributor of office supplies. In year 3, Bangle sells office supplies to Go Green Ltd. (a Canada corporation). Bangle ships $300,000 in
Barry, an individual, and Aldrin, Inc., a domestic C corporation, have decided to form BA LLC. The new LLC will produce a product that Barry recently developed and patented. Barry and Aldrin, Inc.,
DomCo (a domestic corporation) owns 100% of ForCo (a foreign corporation), which operates outside of the United States. Which of the following statements is correct?a. ForCo is not considered a
Which of the following is not a category of income for foreign tax credit limitation purposes?a. General category incomeb. Foreign-derived intangible incomec. Passive category incomed. Foreign branch
The base erosion and anti-abuse tax (BEAT) may apply to corporations:a. Taxed as S corporations.b. With any deductible payments to non-U.S. persons.c. With net assets of $500 million or more in any
In which of the following situations will a foreign person not be treated as a U.S. resident?a. An individual who holds a permanent resident visa (“green card”) and is present in the United
Honk, Inc., a U.S. corporation, purchases weight-lifting equipment for resale from HiDisu, a Japanese corporation, for 60,000,000 yen. On the date of purchase, 110 yen is equal to $1 U.S. (¥110:$1).
Texas Land, Inc., wanted to acquire and develop 100 acres of property in west Texas at a cost of $10,000,000 ($4,000,000 to purchase the land from ABC, Inc., and $6,000,000 for development costs).
What is a partner’s capital account? What methods can be used to determine the capital account, and when might these methods be used? Describe how a partner’s ending capital account balance is
Browne and Red, both C corporations, formed the BR Partnership on January 1, 2021. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR’s gross receipts were
Pedro and Anna plan to form the PA LLC by the end of 2021 to produce and sell specialty athletic apparel. Pedro and Anna will both serve as member-managers of the LLC and will be active in its
Heather sells land (adjusted basis, $75,000; fair market value, $85,000) to a partnership in which she controls an 80% capital interest. The partnership pays her only $50,000 for the land.a. How much
Burgundy, Inc., and Violet are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed payment
The IRS is auditing your client, Artis, on the tax treatment of disposition of an interest in the ABC Partnership. Here’s the background: Partner Artis received $100,000 of cash from ABC
Drop, Inc., a calendar year S corporation, distributes $16,000 cash to its only shareholder, Luetta, on December 31. Luetta’s basis in her stock is $20,000. Drop’s AAA balance is $9,000, and Drop
On what form or attachment does a partnership report that it has made a § 754 election? Prepare such a form using the facts of Example 29.Data from Example 29.A partnership’s sole asset is a
Over the years, Congress has considered (several times) various “partnership simplification” plans. For example, imagine how much less complex partnership taxation would be if § 751 was
Cari Hawkins is a 50% partner in the calendar year Hawkins-Lopez Partnership. On January 1, 2021, her basis in her partnership interest is $160,000. The partnership has no taxable income or loss for
Ebony has a basis in her partnership interest of $85,000. In a proportionate liquidating distribution of the partnership, Ebony receives $5,000 cash and a car (a § 1231 asset to the partnership)
Ming and Denise, mother and daughter, operate a local restaurant as an LLC. The MD LLC earned a profit of $200,000 in the current year. Denise’s equal partnership interest was acquired by gift from
Ridge, Inc., reports the following income for the current year.Operations .................................................$92,000Tax-exempt interest income .....................19,000Long-term
Gabriela and Harry own the GH Partnership, which has conducted business for 10 years. The bases for their partnership interests are $100,000 for Gabriela and $150,000 for Harry. GH Partnership holds
In 2018, 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 2021, the
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, 2021. During 2022, Lonergan, Inc., distributes $140,000 to its
On March 5, 2021, the two 50% shareholders of a calendar year corporation decide to elect S status. Shareholder Mila purchased her stock from a previous shareholder (a nonresident alien) on January
Liang, a calendar year S corporation, distributes $13,000 cash to its only shareholder, Aaron, on December 31. Aaron’s basis in his stock is $15,000. Liang’s AAA balance is $5,000; Liang holds
Caleb calls you and says that his two-person S corporation was involuntarily terminated in February 2020. He asks you if they can make a new S election now, in November 2021. Draft a memo for your
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 2021,
Matulis, Inc., a calendar year C corporation, owns a single asset with a basis of $325,000 and a fair market value of $800,000. Matulis holds a positive E & P balance. The entity elects S
RoofCo reports total book income before taxes of $32,000,000 and a total tax expense of $8,000,000. FloorCo reports book income before taxes of $48,000,000 and a total tax expense of $12,000,000. The
Orange, Inc., a calendar year corporation, elects S corporation status for 2021. The company generated a $74,000 NOL in 2020 and another NOL of $43,000 in 2021. Orange recorded no other transactions
Find two instances where a celebrity or politician used an S corporation to avoid FICA or SE taxes on business, services, or royalty income. Explain the pertinent tax planning concepts, and summarize
Pedro, 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
Mary and Rico plan to establish a retail business that will have outlets in six cities in a southeastern state. Because the business probably will generate losses in at least the first three years,
Shanice and Renee each own 50% of the stock of Olive, an S corporation. They acquired their stock four years ago when Olive was formed. They have decided to dispose of their ownership interests in
Carlota and Dave formed an S corporation that is owned as follows: Carlota 75% and Dave 25%. The corporation distributes an asset to each owner. The corporation has a basis of $45,000 for each asset.
Andrea is an employee of Fern Corporation. She also has her own business working as a life coach. For 2021, Andrea’s wages from Fern were $210,000. Her self-employment income was $30,000.a. Compute
Prance, Inc., earned pretax book net income of $800,000 in 2020. Prance acquired a depreciable asset that year, and first-year tax depreciation exceeded book depreciation by $80,000. Prance reported
Mr. and Mrs. Chang are going to establish a manufacturing business. They anticipate that the business will be profitable immediately due to a patent Mrs. Chang holds. They predict that profits for
Kendra purchased 10,000 shares of Gold Corporation common stock six years ago for $160,000. In the current year, Kendra received 800 shares of preferred stock as a dividend on her common stock, while
Mini, Inc., earns pretax book net income of $750,000 in 2020, its first year of operations. Mini recognized $20,000 in bad debt expense for book purposes. This expense is not yet deductible for tax
Prance reports $600,000 of pretax book net income in 2021. Prance’s book depreciation exceeds tax depreciation that year by $20,000. Prance reports no other temporary or permanent book-tax
Using the facts of Problem 16, determine Prance’s 2021 deferred tax expense and any deferred tax asset or liability. In net present value terms, what has been the value to Prance of accelerating
Using the facts of Problem 14, determine Prance’s 2020 deferred tax expense, total tax expense, and any deferred tax asset or liability.Data from Problem 14.Prance, Inc., earned pretax book net
Using the facts of Problem 20, determine Mini’s 2021 deferred tax expense, total tax expense, and deferred tax assets and liabilities. In net present value terms, what has been the cost to Mini of
Mini, in Problem 18, reports $800,000 of pretax book net income in 2021. For that year, Mini did not recognize any bad debt expense for book purposes but did deduct $15,000 in bad debt expense for
Use guidestar.org or other sites to obtain the following information on the Denver Zoo.• Locate the entity’s website.• Under what paragraph of § 501(c) do you believe the organization is
Sofía is the treasurer of the Chestnut City Garden Club, a new entity in the community. A friend who is the treasurer of the garden club in a neighboring community tells Sofía that Chestnut need
With respect to § 501(c)(3) exempt organizations, send your instructor a table showing information about the unrelated business income that the entities generated for the latest reported tax year.
Rejoice, Inc., a private foundation, has existed for 10 years. Rejoice held undistributed income of $160,000 at the end of its 2020 tax year. Of this amount, $90,000 was distributed in 2021, and
Using the facts of Problem 18, determine Mini’s 2020 deferred tax expense, total tax expense, and deferred tax assets and liabilities.Data from Problem 18.Mini, Inc., earns pretax book net income
The board of directors of Teton Pearl, Inc., a private foundation, consists of Charlyne, Beth, and Carlos. They vote unanimously to provide a $500,000 grant to Carlos. The grant is to be used for
Wally, Inc., sold the following three personal property assets in year 6: What is Wally’s Section 1245 recapture in year 6? a. $500 lossb. $300 gain c. $800 gain d. $1,600 gain
Wally, Inc., sold the following three personal property assets in year 6: What is Wally’s net Section 1231 gain or loss in year 6? a. $500 loss b. $300 gain c. $800 gain d.
Your client, Alternate Fuel, Inc. (a regular corporation), owns three sandwich shops in the Philadelphia area. In 2016, the year Alternate Fuel incorporated, it acquired land on the outskirts of
Jasmine owned rental real estate that she sold to her tenant in an installment sale. Jasmine acquired the property in 2007 for $400,000; took $178,000 of depreciation on it; and sold it for $210,000,
George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events
During the year, Eugene had the four property transactions summarized on the next page. Eugene is a collector of antique glassware and occasionally sells a piece to get funds to buy another. What are
A corporation distributes a truck it has owned for three years to its sole shareholder. The shareholder will use the truck for personal use activity. The truck’s fair market value at the time of
A corporation distributes a truck it has owned for three years to its sole shareholder. The shareholder will use the truck for personal use activity. The truck’s fair market value at the time of
James A. and Ella R. Polk, ages 70 and 65, respectively, are retired physicians who live at 3319 Taylorcrest Street, Houston, Texas 77079. Their three adult children (Benjamin Polk, Michael Polk, and
James A. and Ella R. Polk, ages 70 and 65, respectively, are retired physicians who live at 3319 Taylorcrest Street, Houston, Texas 77079. Their three adult children (Benjamin Polk, Michael Polk, and
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303.
The Dolce Estate reports the following items for the current tax year. Dividend income.....................................$ 50,000 Taxable interest
Sanchez incurred the following items. Business income, exclusive of the following items......................................$80,000 Tax-exempt interest
The Hosta Trust reports gross rent income of $72,000, expenses attributable to the rents of $55,000, and tax-exempt interest from state bonds of $18,000. Under the trust agreement, the trustee is to
The Biltmore Trust is a simple trust. Crawford is its sole beneficiary. In the current year, the trust earns $3,200 in taxable interest and $8,000 in tax-exempt interest. In addition, the trust
The Wes Trust reports $100,000 of AMT income before the annual exemption. The entity’s AMT for 2019 is: a. $19,604. b. $20,573. c. $26,000. d. $28,000.
Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2019 tax year. The trustee accumulates all accounting income for the
Discuss the estate and income tax ramifications of each of these transactions. a. Lucy borrowed $600,000 from her brother, Irwin, so that Lucy could start a business. The loan was on open
Under Rowena’s will, Mandy (Rowena’s sister) inherits her property. One year later, Mandy dies. Based on the following independent assumptions, what is Mandy’s credit for the tax on prior
While vacationing in Florida in November, Sally was seriously injured in an automobile accident. Sally died several days later. Apply the Federal estate tax rules to each of these items. a.
Assume the same facts as in Problem 41, except that Gordon and Fawn are husband and wife (not brother and sister). a. What are the gift tax consequences when the real estate was
Gordon purchased real estate for $900,000 and listed title to the property as “Gordon and Fawn, joint tenants with right of survivorship.” Gordon predeceases Fawn when the real estate is worth
At the time of his death on July 9, Aiden held rights in the following real estate: The apartment building was purchased by Chloe, Aiden’s mother, and is owned in a joint tenancy with her. The
Assume the same facts as in Problem 37 with the following modifications. What amount is included in Alicia’s gross estate for these items? • Mitch is killed in a rock slide while mountain
At the time of her death on September 4, Alicia held the following assets:
At the time of his death this year on September 4, Kenneth owned the following assets, among others: In October, the executor of Kenneth’s estate received the following: $120,000 interest on
Using property she inherited, Myrna makes a gift of $16.2 million to her adult daughter, Doris. Neither Myrna nor her husband, Greg, has made any prior taxable gifts. Assuming that a flat 40% tax
Jesse dies intestate (i.e., without a will) in May year 1. Jesse’s major asset is a tract of land. Under applicable state law, Jesse’s property will pass to Lorena, who is his only child. In
In each of the following independent situations, indicate whether the alternate valuation date can be elected. Explain why or why not. Value of Gross Estate Estate Tax Liability Date of Six
Donald dies this year, and under his will, a trust is created in the amount of $6 million with the following provisions: life estate to Cindy (Donald’s wife) and remainder to their children. His
Matthew owns an insurance policy (face amount of $500,000) on the life of Emily, with Uma listed as the designated beneficiary. If Emily dies first and the $500,000 is paid to Uma, how much as to
Noah and Sophia want to make a maximum contribution to their state’s qualified tuition program (§ 529 plan) on behalf of their minor granddaughter, Amanda, without exceeding the annual Federal
Christian wants to transfer as much as possible to his four adult married children (including spouses) and eight minor grandchildren without using any unified transfer tax credit. a. How much
Included in Mary’s gross estate are the following assets: a. How much is included in her gross estate if the alternate valuation date is elected? b. Instead, what if all of Mary’s
Bernice dies and, under a valid will, passes real estate to her surviving husband. The real estate is subject to a mortgage. For estate tax purposes, how is any marital deduction determined? Can

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