Exam 15: Comparative Forms of Doing Business

In the purchase of a partnership,does the way the purchase is structured (i.e.,purchase of the partnership interests or purchase of the partnership assets)produce different tax consequences for the purchasers?

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Question 1

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From the buyer's perspective,the form of the transaction does not produce different tax consequences.If the transaction is an asset purchase,the basis for the assets is the amount paid.Assuming that the buyers intend to continue to operate in partnership form,the assets can be contributed to a new partnership under § 721.The partners' basis for their partnership interest is equal to the purchase price for the assets.Likewise,if partnership interests are purchased,the partners' basis is the purchase price and the partnership's basis for the assets is the purchase price because the original partnership will have terminated.

Kirby,the sole shareholder of Falcon,Inc.,leases a building to the corporation.The taxable income of the corporation for 2013,before deducting the lease payments,is projected to be $500,000.

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Question 2

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Alice contributes equipment (fair market value of $82,000; adjusted basis of $20,000),subject to a $14,000 liability,to form Orange Partnership,a general partnership.Mary contributes $68,000 cash.Alice and Mary share equally in partnership profits and losses.What is Alice's and Mary's basis for their partnership interests?

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Question 3

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Roger owns 40% of the stock of Gold,Inc.(adjusted basis of $800,000).Silver redeems 60% of Roger's shares for $900,000.If the stock redemption qualifies for return of capital treatment,Roger's recognized gain is $100,000.

(True/False)

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Question 4

The legal form of Edith and Fran's business entity is an LLC.Under the check-the-box Regulations,what options are available to them for Federal income tax purposes? Which option would you normally recommend?

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Question 5

Bart contributes $100,000 to the Fish Partnership for a 40% interest.During the first year of operations,Fish has a profit of $20,000.At the end of the first year,Fish has outstanding loans from the following banks. What is Bart's at-risk basis in Fish at the end of the first year?

(Multiple Choice)

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Question 6

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

(True/False)

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Question 7

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form

(Multiple Choice)

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Question 8

Kirk is establishing a business in 2013 which could have potential environmental liability problems.Therefore,he is trying to decide between the C corporation form and the S corporation form.He projects that the business will generate losses of approximately $100,000 each year for the first 3 years and then will generate profits of at least $200,000 each year thereafter.All profits will be reinvested in the growth of the business.Kirk projects he will be in the 35% bracket in 2013 and thereafter.Advise Kirk on which tax form he should select.

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Question 9

Cory is going to purchase the assets of Kahlyn's sole proprietorship.The assets of Kahlyn's sole proprietorship have appreciated in value.From Cory's perspective,does it matter whether the purchase is structured as (1)the purchase of the individual assets or (2)the purchase of the sole proprietorship?

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Question 10

Beige,Inc.,has 3,000 shares of stock authorized and 1,000 shares outstanding.The shares are owned by Sam (700 shares)and Lois (300 shares).Sam's adjusted basis for his stock is $100,000 and Lois' adjusted basis for her stock is $90,000.Beige's earnings and profits are $500,000.Beige redeems 200 of Lois' shares for $150,000.Determine the amount of Lois' recognized gain (1)if she is Sam's mother and (2)if they are unrelated.

(Multiple Choice)

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Question 11

Lime,Inc.,has taxable income of $334,000.If Lime is a C corporation,its tax liability must be either $113,510 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($234,000 ´ 39%)] or $116,900.

(True/False)

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Question 12

Agnes owns a sole proprietorship for which the assets have appreciated in value.If she is going to sell the business to Abner,should she structure the sale as (1)a sale of the individual assets or (2)a sale of the sole proprietorship?

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Question 13

Martin contributes property with an adjusted basis of $100,000 and a fair market value of $140,000 to a newly formed business entity.If the entity is an S corporation and the transaction qualifies under § 351,the S corporation's basis for the property and the shareholder's basis for the stock are: Asset Basis Stock Basis

(Multiple Choice)

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Question 14

Only C corporations are subject to the accumulated earnings tax (i.e.,S corporations are not).

(True/False)

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Question 15

Albert and Elva each own 50% of the stock of Eagle,Inc.(a C corporation).To cover what is perceived as temporary working capital needs,each shareholder loans Eagle $200,000 with an annual interest rate of 6% (same as the Federal rate)and a maturity date of one year.The loan is made at the beginning of 2013.

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Question 16

Amber,Inc.,has taxable income of $212,000.In addition,Amber accumulates the following information which may affect its AMT. What is Amber's AMTI?

(Multiple Choice)

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Question 17

Daisy,Inc.,has taxable income of $850,000 during 2013,its first year of operations.Daisy distributes dividends of $200,000 to its 10 shareholders (i.e.,$20,000 each).Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

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Question 18

Which of the following special allocations are mandatory for the partners in a partnership?

(Multiple Choice)

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Question 19

What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?

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Question 20

Showing 1 - 20 of 139

In the purchase of a partnership,does the way the purchase is structured (i.e.,purchase of the partnership interests or purchase of the partnership assets)produce different tax consequences for the purchasers?

Kirby,the sole shareholder of Falcon,Inc.,leases a building to the corporation.The taxable income of the corporation for 2013,before deducting the lease payments,is projected to be $500,000.

Roger owns 40% of the stock of Gold,Inc.(adjusted basis of $800,000).Silver redeems 60% of Roger's shares for $900,000.If the stock redemption qualifies for return of capital treatment,Roger's recognized gain is $100,000.

The legal form of Edith and Fran's business entity is an LLC.Under the check-the-box Regulations,what options are available to them for Federal income tax purposes? Which option would you normally recommend?

Bart contributes $100,000 to the Fish Partnership for a 40% interest.During the first year of operations,Fish has a profit of $20,000.At the end of the first year,Fish has outstanding loans from the following banks. What is Bart's at-risk basis in Fish at the end of the first year?

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form

Lime,Inc.,has taxable income of $334,000.If Lime is a C corporation,its tax liability must be either $113,510 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($234,000 ´ 39%)] or $116,900.

Agnes owns a sole proprietorship for which the assets have appreciated in value.If she is going to sell the business to Abner,should she structure the sale as (1)a sale of the individual assets or (2)a sale of the sole proprietorship?

Only C corporations are subject to the accumulated earnings tax (i.e.,S corporations are not).

Amber,Inc.,has taxable income of $212,000.In addition,Amber accumulates the following information which may affect its AMT. What is Amber's AMTI?

Daisy,Inc.,has taxable income of $850,000 during 2013,its first year of operations.Daisy distributes dividends of $200,000 to its 10 shareholders (i.e.,$20,000 each).Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Which of the following special allocations are mandatory for the partners in a partnership?

What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?

Introduction to Taxation

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

Corporations: Organization, capital Structure, and Operating Rules

Corporations: Earnings Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and Corporate Alternative Minimum Tax

Introduction to the Taxation of Individuals

Individuals As Employees and Proprietors

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