Just need some help with a few problems from my federal income- corporations class. Thank you!

FEDERAL INCOME TAX I - AC 214 TAKE-HOME QUIZ #1 Spring 2014 Circle the single best answer for each true/false and multiple-choice question on the separate answer sheet provided. Answers to the long problem should be submitted on separate paper. True (T) / False (F) (16%) 1. T F Final regulations have almost the same legislative weight as the Internal Revenue Code. 2. T F Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit. 3. T F A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a taxpayer. 4. T F A sole proprietor is required to use the same reporting period for both business and individual tax information. 5. T F The check-the-box regulations permit an LLC to be taxed as a C corporation. 6. T F The transferor's basis for any noncash boot property received in a Section 351 transaction is the boot's FMV reduced by any unrecognized gain. 7. T F A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Section 351 exchange. 8. T F If a corporation's total adjusted bases for all properties transferred exceed the total FMV of the properties, the corporation's bases in the property is limited to FMV if no election is made. -2Multiple-Choice (72%) 9. Investigation of a tax problem that involves a closed-fact situation means that: A. The client's transactions have already occurred and the tax questions must now be resolved. B. The client's tax return has yet to be filed. C. Future events may be planned and controlled. D. Research is primarily concerned with applying the law to the facts as they exist. 10. A tax bill introduced in the House of Representatives is then: A. Referred to the House Ways and Means Committee for hearings and approval. B. Referred to the entire House for hearings. C. Voted upon by the entire House. D. Forwarded to the Senate Finance Committee for consideration. 11. When the House and Senate versions of a tax bill are not in agreement, the disagreements are resolved by the: A. Ways and Means Committee. B. Mediation Committee. C. Revenue Committee. D. Conference Committee. 12. When Congress passes a statute with language such as, "The Secretary shall prescribe such regulations as he may deem necessary," the regulations ultimately issued for that statute are: A. Congressional regulations. B. Statutory regulations. C. Interpretative regulations. D. Legislative regulations. 13. Which regulation deals with the gift tax? A. Reg. Sec. 1.165-5 B. Reg. Sec. 20.2014-5 C. Reg. Sec. 25.2518-5 D. Reg. Sec. 301.7002-5 -3- 14. Which of the following best describes the weight of a revenue ruling? A. Revenue rulings carry more weight than regulations. B. Revenue rulings carry more weight than federal court decisions. C. Regulations carry more weight than revenue rulings. D. Revenue rulings should never be used as authority since they only apply to the taxpayer requesting the ruling. 15. Which of the following statements is true? A. Shareholders in a C corporation can use C corporation losses to offset shareholder income from other sources. B. C corporation losses remain in the C corporation and can offset capital gain income from other years. C. C corporation shareholders are taxed based on their proportionate share of income. D. Distributions of C corporation income are not taxable. 16. Which of the following statements is true? A. A transferor's gain or loss that goes unrecognized when Section 351 applies is permanently exempt from taxation. B. If a taxpayer transfers property and services as part of a transaction meeting the Section 351 requirements, all of the stock received is counted in determining whether the property transferors have acquired control. C. If a taxpayer transfers property and services as part of a transaction meeting the Section 351 requirements, the nonrecognition of gain or loss will apply to the services. D. All of the above are false. 17. Which of the following statements is true? A. The exchange of stock for services rendered is not a taxable transaction. B. The repeal of Section 351 would result in more existing businesses being incorporated. C. Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. D. All of the above are false. -4- 18. Alan, Baker, and Carr formed Dexter Corporation during 2012. Pursuant to the incorporation agreement, Alan transferred property with an adjusted basis of $30,000 and a fair market value of $45,000 for 450 shares of stock, Baker transferred cash of $35,000 in exchange for 350 shares of stock, and Carr performed services valued at $25,000 in exchange for 250 shares of stock. Assuming the fair market value of Dexter Corporation stock is $100 per share, what is Dexter Corporation's tax basis for the property received from Alan? A. $0 B. $35,000 C. $45,000 D. $65,000 19. Clark and Hunt organized Jet Corporation with authorized voting common stock of $400,000. Clark contributed $60,000 cash. Both Clark and Hunt transferred other property in exchange for Jet stock as follows: Other Property Fair Adjusted Market Basis Value $ 50,000 $100,000 120,000 240,000 Clark Hunt Percentage of Jet stock acquired 40% 60 What was Clark's basis in Jet stock? A. $0 B. $100,000 C. $110,000 D. $160,000 20. Roberta Warner and Sally Rogers formed the Acme Corporation on October 1, 2012. On the same date, Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Rogers received 100 shares of Acme's common stock for services rendered. How much should Rogers include as taxable income for 2012 and what will be the basis of her stock? Taxable Income A. B. C. D. $ 0 0 10,000 10,000 Basis of Stock $ 0 10,000 0 10,000 -5- 21. Mario and Lupita form a corporation in a transaction coming under Section 351. Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for onehalf of the stock. The property has an $80,000 mortgage, which the corporation assumes. The corporation's basis in the property is: A. $200,000 B. $150,000 C. $80,000 D. $130,000 22. Under Section 351, corporate stock may include all of the following except: A. Voting stock. B. Nonvoting stock. C. Stock warrants. D. Qualified preferred stock. 23. Jackson, a single individual, inherited Bean Corp. common stock from Jackson's parents. Bean is a qualified small business corporation under Section 1244. The stock cost Jackson's parents $20,000 and had a fair market value of $25,000 at the parents' date of death. During the year, Bean declared bankruptcy and Jackson was informed that the stock was worthless. What amount may Jackson deduct as an ordinary loss in the current year? A. $0 B. $3,000 C. $20,000 D. $25,000 24. Nancy, who is single, formed a corporation during 2009 using a tax-free asset transfer that qualified under Section 351. She transferred property having an adjusted basis of $80,000 and a fair market value of $60,000, and in exchange received Section 1244 small business corporation stock. During February 2012, Nancy sold all of her stock for $35,000. What is the amount and character of Nancy's recognized loss resulting from the sale of the stock in 2012? A. $0 ordinary loss; $45,000 capital loss. B. $25,000 ordinary loss; $10,000 capital loss. C. $25,000 ordinary loss; $20,000 capital loss. D. $45,000 ordinary loss; $0 capital loss. -6- 25. Colleen operates a business as a sole proprietorship. She purchased a computer for $10,000 last year. The computer is five-year recovery property for MACRS purposes and is depreciated under the regular MACRS rules. This year, Colleen incorporates the business and transfers the computer to the new corporation on July 20. The depreciation on the computer for this year allocable to the sole proprietorship is: A. $1,868 B. $1,600 C. $1,333 D. $500 26. The City of Springfield donates land worth $250,000 to Deuce Corporation to induce it to locate in Springfield and provide 1,000 jobs for its citizens. How much gross income must Deuce Corporation recognize because of the land contribution, and what is the land's basis to Deuce Corporation? A. $250,000 income; $250,000 basis B. $250,000 income; $0 basis C. $0 income; $250,000 basis D. $0 income; $0 basis -7- Long Problem (11%) Stu Walker has owned all 200 shares of Lance Corporation's stock for the past six years. This year, Megan Jones contributes property with a $100,000 basis and a $160,000 FMV for 160 newly issued Lance shares. At the same time, Stu contributes $30,000 in cash for 30 newly issued Lance shares. Answer the following questions: Does the property transfer meet the Sec. 351 requirements? Have Stu and Megan transferred property? Does the fact that Stu controls Lance Corporation prior to the transfer change the general Sec. 351 rules? Are the transferors in control of the corporation following the transfer? Do the transferors receive transferee corporation stock? What is each shareholder's recognized gain? What is each shareholder's basis for his or her stock? What is each shareholder's holding period for his or her stock? Does Lance Corporation recognize gain when it issues its stock? What is Lance Corporation's basis for the property received from Megan? What is Lance Corporation's holding period for the property received from Megan? AC 214 - TAKE-HOME QUIZ #1 ANSWER SHEET NAME: ______________________________ 1. T F 9. A B C D 2. T F 10. A B C D 3. T F 11. A B C D 4. T F 12. A B C D 5. T F 13. A B C D 6. T F 14. A B C D 7. T F 15. A B C D 8. T F 16. A B C D 17. A B C D 18. A B C D 19. A B C D 20. A B C D 21. A B C D 22. A B C D 23. A B C D 24. A B C D 25. A B C D 26. A B C D