Questions and Answers of Taxation of Business Entities

Roland had a taxable estate of $15.5 million when he died this year. Calculate the amount of estate tax due (if any) under the following alternatives.a. Roland’s prior taxable gifts consist of a
Stephen transferred $17,500 to an irrevocable trust for Graham. The trustee has the discretion to distribute income or corpus for Graham’s benefit, but is required to distribute all assets to
Sam Smith is a citizen and bona fide resident of Great Britain (United Kingdom). During the current year, Sam received the following income:Compensation of $30 million from performing concerts in the
Guido is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 20156, Guido came to the United States for the first time.
Why are the income source rules important to a U.S. non-resident?
LeMond Incorporated, a Wisconsin corporation, runs bicycle tours in several states. LeMond also has a Wisconsin retail store and an Internet storethat ships to out-of-state customers. The bicycle
Last year, Reggie, a Los Angeles, California resident, began selling autographed footballs through Trojan Victory (TV), Incorporated, a California corporation. TV has never collected sales tax. Last
Kai operates the Surf Shop in Laie, Hawaii, whichdesigns, manufacturers, and customizes surf boards. Hawaii has a hypothetical 4 percent excise tax technically paid by the seller. However, the state
Using the same facts in problem 47, assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $400,000.a. What amount of gain or loss does BLI recognize if the transaction is structured as
On August 28, 2017, Mirna Therapeutics, Inc., completed its business combination with Synlogic, Inc. The Form 8-K for Synlogic(NASDAQ ticker SYBX, cik0001667986) describes the transaction and was
On September 12, 2017, Inotek Pharmaceuticals agreed to acquire Rocket Pharmaceuticals, Ltd., a privately held bio-pharmaceutical company in a tax-deferred acquisition. The Form 8-K for Inotek
Under what circumstances must a corporate shareholder recognize gains in a complete liquidation?
Describe when a corporate shareholder must defer gains on the receipt of distributions of property from the complete liquidation of a subsidiary corporation.
Describe the advantages (if any) of using a reverse triangular form of Type A reorganization in acquiring other corporations.
Explain when an acquiring corporation would prefer to buy the target corporation’s assets directly in an acquisition.
Aggie Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100% of Aggie Corporation. The
Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land’s fair
Illini Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of an automobile to its sole shareholder, Carly Urbana. The
Tiger Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Mike Fairway. The land’s fair
Volunteer Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Rocky Top p. The land’s
Boilermaker, Inc. reported taxable income of $500,000 this year and paid federal income taxes of $105,000. Not included in the company’s computation of taxable income is tax-exempt income of
This year Bobcat Company reports current E&P of negative $300,000 that accrued evenly throughout the year. At the beginning of the year,Bobcat’s accumulated E&P was a $200,000. Bobcat
Bulldog Corporation reported taxable income of $500,000 this year before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to
Reveille Corporation experienced a complete loss of its lumber mill as the result of a fire. The company received $2 million from the insurance company. Rather than rebuild, Reveille decided to
When might a shareholder have to rely on the “not essentially equivalent to a dividend” test in arguing a stock redemption should be treated as an exchange for tax purposes?
In general, what causes a stock distribution to be taxable to the recipient?
Why might a corporation issue a stock distribution to its shareholders?
corporation distributes depreciated non-cash property to a shareholder. What impact does the distribution have on the corporation’s earnings and profits?
Assuming adequate amounts of corporate E&P, what is the formula for determining the amount of a non-cash distribution a shareholder must include in gross income?
How does the double taxation of corporate distributions affect whether an individual chooses to operate a business as a C corporation or as flow-through entity??
Spartan Builders Corporation is a builder of high-end housing with locations in major metropolitan areas throughout the Midwest. At June 30, 2018, the company has deferred tax assets totaling $10
Access the 2017 Annual Report for Facebook, Inc., and answer the following questions.a. Using information from the company’s Income Statement and Income Taxes footnote, what was the company’s
Randolph Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book-tax difference of $300,000 was due to a $200,000 favorable temporary
What was Alphabet Inc.’s (Google) accounting effective tax rate for 2017? What items caused the company’s accounting effective tax rate to differ from the “hypothetical” tax rate of 35
Cadillac Square Corporation determined that $1,000,000 of its research tax on its current year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made
Access the 2017 Form 10-Ks for General Motors, Inc. and Berkshire Hathaway. What was the impact of the Tax Cuts and Jobs Act on their income tax provision for 2017? Why was the impact in opposite
Burcham Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest.
Ann Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable
Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond
Shaw, Inc. reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000.
Shaw Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable
Chandler Corporation reported pretax book income of $2,000,000. Tax depreciation exceeded book depreciation by $500,000. During the year the Company capitalized $250,000 into ending inventory under
Grand Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest.
Cass Corporation reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by
XYZ is a calendar-year corporation that began business on January 1, 2017. For 2018, it reported the following information in its current year audited income statement. Notes with important tax
Timpanogos Inc. is an accrual-method calendar-year corporation. For 2018, it reported financial statement income after taxes of $1,152,000. Timpanogos provided the following information relating to
Compute HC Inc.’s current year taxable income given the following information relating to its 2018 activities. Also, compute HC’s Schedule M-1 assuming that HC’s federal income tax expense for
Compute MV, Corp.’s 2018 taxable income given the following information relating to its year 1 activities. Also, compute MV’s Schedule M-1 assuming that MV’s federal income tax expense for book
Last year, Cougar Corp. (CC) reported a net operating loss of $25,000. In the current year, CC expected its current year tax liability to be $260,000 so it made four equal estimated tax payments of
In year 1 (the current year), LAA Inc. made a charitable donation of $100,000 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $550,000 which included a
Cedar Corporation reported a net operating loss in 2018 of $25,000,000. In 2019, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2019 and
Cedar Corporation reported a net operating loss in 2018 of $25,000,000. In 2019, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2019 and
Assume that in 2018 Hill Corporation reported a net operating loss of $10,000 that it carried forward to year 2019. In 2018, Hill also reported a net capital loss of $3,000 that it carried forward to
MWC Corp. is currently in the sixth year of its existence (2018). In 2013–2017, it reported the following income and (losses) (before net operating loss carryovers or carry backs).2013: ($
Assume that on January 1, year 1, ABC, Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share
ELS corporation is about to begin its sixth year of existence. Assume that ELS reported gross receipts for each of its first five years of existence for scenarios A, B, and C as follows:Year
ATW corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the
Briefly describe the process of computing a corporation’s minimum tax credit carryover.
How does a corporation determine the minimum amount of estimated tax payments it must make to avoid underpayment penalties? How are these rules differ for large corporations?
What is the due date for a calendar year corporation tax return Form 1120 for 2018? Is it possible to extend the due date? Explain.
Describe how goodwill with a zero basis for tax purposes but not for book purposes leads to a permanent book–tax difference when the book goodwill is written off as impaired.
What role do a corporation’s audited financial statements play in determining its taxable income?
After several years of profitable operations, Javell, the sole shareholder of JBD Inc., a Ccorporation, sold 22 percent of her JBD stock to ZNO Inc., a Ccorporation in a similar industry. During the
In its first year of existence, SMS, anS corporation, reported a business loss of $10,000. Michelle, SMS’s sole shareholder, reports $50,000 of taxable income from sources other than SMS. What must
James and Kate Sawyer were married on New Year’s Eve of 2017.Before their marriage, Kate lived in New York and worked as a hair stylist for one of the city’s top salons.James lives in Atlanta
Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming.Meagan inherited $75,000 from her
Jesse Brimhall is single.In 2018, his itemized deductions were $9,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before
Rajiv and Laurie Amin are recent college graduates looking to purchase a new home.They are purchasing a $200,000 home by paying $20,000 down and borrowing the other $180,000 with a 30-year loan
On January 1 of 2018, Jason and Jill Marsh acquired a home for $500,000 by paying $400,000 down and borrowing $100,000 with a 7 percent loan secured by the home.On January 1, 2019, the Marshes needed
On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.5 million by paying $200,000 down and borrowing the remaining $1.3 million with a 7 percent loan secured by the home. The
Lewis and Laurie are married and jointly own a home valued at $240,000.They recently paid off the mortgage on their home.The couple borrowed money from the local credit union in January of 2018. How
Javier and AnitaSanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home.The Sanchezes
Javier and Anita Sanchez purchased a home on January 1, 2018 for, $600,000 by paying $200,000 down and borrowing the remaining $400,000 with a 7 percent loan secured by the home.The loan requires
Troy (single) purchased a home in Hopkinton, Massachusetts, on January 1, 2007 for $300,000.He sold the home on January 1, 2018 for $320,000.How much gain must Troy recognize on his home sale in each
Sarah (single) purchased a home on January 1, 2008 for $600,000.She eventually sold the home for $800,000.What amount of the $200,000 gain on the sale does Sarah recognize in each of the following
How do self-employed taxpayers report home office deductions on their tax returns?
Are real property taxes subject to any deduction limitations? Explain.
Consider the settlement statement in Appendix A to this chapter.What amounts on the statement are the Jeffersons allowed to deduct on their 2018 tax return?Indicate the settlement statement line
With recent tax law changes, are taxpayers likely to receive more or less tax savings from home mortgage interest deductions?
Is it possible for a taxpayer to have more than one loan that is treated as acquisition indebtedness for tax purposes? Explain
For purposes of determining a taxpayer's deductible home mortgage interest, does it matter when the taxpayer incurred the debt to acquire the home? Explain.
Gerry (age 56) and Elaine (age 54) have been married for 12 years and file a joint tax return.The couple lives in an apartment in downtown Manhattan.Gerry’s father, Mortey, recently retired from
Tommy (age 47) and his wife, Michelle (age 49), live in Columbus, Ohio, where Tommy works for Callahan Auto Parts (CAP) as the vice-president of the brakes division.Tommy’s 2018 salary is
Alex is 31 years old and has lived in Los Alamos, New Mexico, for the last four years where he works at the Los Alamos National Laboratory (LANL). LANL provides employees with a 401(k) plan and for
Ian retired in June of 2017 at the age of 69 (he turned 70 in August of 2017).Ian’s retirement account was valued at $490,000 at the end of 2016 and $500,000 at the end of 2017. He has had all of
Jacquiline is unmarried and age 32. Even though she participates in an employer-sponsored retirement plan, Jacquiline contributed $3,000 to a traditional IRA during the year. Jacquiline files as a
Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2018). In 2018, his net Schedule C income was $300,000.This was his only source of income.This year, Reggie is
Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2018). During 2018, her net Schedule C income was $300,000.This was her only source of income.This year, Rita is
Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2018).In2018, her net Schedule C income was $130,000.This was her only source of income.This year, Hope is considering
Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2018). In 2018, her net Schedule C income was $130,000. This was her only source of income.This year, Elvira is
Sarah was contemplating making a contribution to her traditional individual retirement account for 2018. She determined that she would contribute $5,500 to her IRA and she deducted $5,500 for the
Yuki (age 45 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and her IRA is now worth $50,000. She is trying to decide whether she should roll over
Seven years ago, Halle (currently age 41) contributed $4,000 to a Roth IRA account.The current value of the Roth IRA is $9,000.In the current, year Halle withdraws $8,000 of the account balance to
Sherry, who is 52 years of age, opened a Roth IRA three years ago. She has contributed a total of $12,000 to a Roth IRA ($4,000 a year).The current value of the Roth IRA is $16,300.In the current
George (age 42 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and his IRA is now worth $25,000.He is planning on transferring (or rolling over) the
Jackson and Ashley Turner (both 45 years old) are married and want to contribute to a Roth IRA for Ashley.In 2018, their AGI is $191,000. Jackson and Ashley each earned half of the income.a. How much
In 2018, Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account.The balance of his IRA account is $160,000 (before
In 2018, Susan (44 years old) is a highly successful architect and is covered by an employee-sponsored plan.Her husband, Dan (47 years old), however, is a Ph.D. student and is unemployed.Compute the
William is a single writer (age 35) who recently decided that he needs to save more for retirement. His 2018 AGI before the IRA contribution deduction is $66,000 (all earned income).a. If he does not
XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years.(For purposes of this problem, ignore payroll taxes

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