Exam 15: Comparative Forms of Doing Business

Normally a C corporation shareholder would prefer to receive a return of capital distribution (e.g.,stock redemption)rather than a dividend distribution.Provide an example of where the opposite is true.

How can double taxation be avoided or reduced by owning assets outside a C corporation?

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable,the taxable income of a C corporation increases and the gross income of the shareholder increases.

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%.

Mr.and Ms.Smith's partnership owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Mr)and Ms.Smith each have a basis for their partnership interest of $135,000.Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

Tonya contributes $150,000 to Swan,Inc.,for 80% of the stock.In addition,she loans Swan $600,000.The maturity date on the loan is 5 years and the interest rate is 6%,the same as the Federal rate.Which of the following statements are correct?

Barb and Chuck each own one-half of the stock of Wren,Inc.,a C corporation.Each shareholder has a stock basis of $175,000.Wren has accumulated E & P of $300,000.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each shareholder.Barb's stock basis at the end of the year is:

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?

Factors that should be considered in making the S corporation election for the current tax year include the following:

Wren,Inc.is owned by Alfred (30%)and Mabel (70%).Alfred's marginal tax rate is 25% and Mabel's marginal tax rate is 35%.Wren's taxable income for 2013 is $300,000.

Melba contributes land (basis of $190,000; fair market value of $250,000)to a business entity in exchange for 100% of the stock.During the first year of operations,the entity earns a profit of $75,000.At the end of the first year,the entity has outstanding liabilities of $30,000 ($20,000 recourse and $10,000 nonrecourse).

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

The special allocation opportunities that are available to partnerships are available to S corporations only if affected shareholders elect to do so.

Melinda's basis for her partnership interest is $250,000.If she receives a cash distribution of $290,000,her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0.Melinda is still a partner after the distribution.

The § 465 at-risk provision and the § 469 passive activity loss provision have decreased the tax attractiveness of investments in real estate for partnerships and for limited liability companies.

The AMT tax rate for a C corporation is greater than the regular tax rate for C corporations.

Which of the following is descriptive of the accumulated earnings tax?

All of the shareholders of an S corporation have limited liability with respect to their ownership interests in the corporation,whereas only limited partners in a limited partnership have such limited liability.

Walter wants to sell his wholly-owned C corporation,Cream,Inc.The fair market value of his stock exceeds the corporation's adjusted basis for the assets.Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?