Exam 18: Comparative Forms of Doing Business

Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest in Trout Partnership, which is classified as a passive activity.Trout's taxable loss for the current year is $250,000.During the year, Catfish receives a $60,000 cash distribution from Trout.Other relevant data for Catfish are as follows. Net income from operations \ 800,000 Dividend income 25,000 Rent income 20,000 How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income?

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

The profits of a business owned by Taylor (60%) and Maggie (40%) for the current tax year are $100,000.If the business is a C corporation or an S corporation, there is no effect on Taylor's basis in her stock.If the business is a partnership or an LLC, Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

List some techniques for reducing and/or avoiding double taxation by transferring funds to the shareholders that are deductible to the corporation.

​For which type of entity is an owner least likely to have an "wherewithal to pay" problem.Explain.Your explanation should briefly describe any wherewithal to pay issue for sole proprietorships, partnerships, S corporations and C corporations.

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders, but is the same as the fringe benefit treatment for partners.

Albert's sole proprietorship owns the following assets. Adjusted Basis Fair Market Value Accounts receivable \- 0- \ 60,000 Inventory 20,000 30,000 Machinery and equipment* 50,000 90,000 Buil dings** 120,000 170,000 Land 80,000 140,000 \ 270,000 \ 490,000 * 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.

Match the following statements. -Partnerships

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Mercedes owns a 30% interest in Magenta Partnership (basis of $52,000) which she sells to Calvin for $65,000.Mercedes' recognized gain of $13,000 will be classified as capital gain.

Barb and Chuck each own one-half of the stock of Wren, Inc., a C corporation.Each shareholder holds 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:

What special AMT adjustment is required in calculating the AMT of a C corporation that does not apply in calculating the AMT of an individual taxpayer?

Match the following statements. -Sale of the corporate assets by the C corporation.

Candace, who is in the 33% tax bracket, is establishing a business which could have potential environmental liability problems.Therefore, she is trying to decide between the C corporation form and the S corporation form.She projects that the business will generate earnings of about $75,000 each year.Advise Candace on the tax consequences of each entity form.

What tax rates apply for the AMT for an individual taxpayer and for a C corporation?

Match the following statements. -Sale of corporate stock by the S corporation shareholders.

Daniel, who is single, estimates that the profits of his business for the current tax year will be $100,000; Daniel has no other sources of gross income.Since the highest tax rate (34%) applicable to corporate taxable income of $100,000 is greater than the highest tax rate (28%) applicable to individual taxable income of $100,000, the Federal income tax liability will be less if Daniel conducts his business as a sole proprietorship rather than as a C corporation.

Techniques are available that may permit a C corporation to avoid double taxation.

Match the following attributes with the different forms.A particular attribute may apply to more than one entity form. -Sole proprietorship

Of the corporate types of entities, all are subject to double taxation on current earnings.