Exam 18: Comparative Forms of Doing Business

In its first year of operations, Lavender, Inc.(a C corporation) has gross receipts of $8 million and net income of $2 million.Lavender is not subject to the AMT for the year.

The Corporation has a greater potential for raising capital than does the partnership.

Match the following statements. -AMT

Match the following statements. -C corporations

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?

Match the following. -S corporation

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

Techniques that can be used to minimize the current period tax liability include:

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

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.

Match the following statements. -Organization costs

Bev and Cabel each own one-half of the stock of Finch, Inc., an S corporation with no accumulated E & P.Bev's basis in the Finch stock is $225,000.Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each shareholder.Bev's stock basis at the end of the year is:

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.

Transferring funds to shareholders, that are deductible by the C corporation, can reduce or eliminate double taxation.

For Federal income tax purposes, a business entity with two or more owners may be conducted as a partnership, C corporation, S corporation, or limited liability company.

Match the following statements. -Net capital loss

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

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

Kirk is establishing a business in year 1 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 for all tax years.Advise Kirk on which tax form he should select.

Alanna contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity.If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the property and the partner's basis for the partnership interest are: ​ Asset Basis Stock Basis a.\ 80,000 \ 100,000 b.\ 100,000 \ 80,000 c.\ 80,000 \ 80,000 d.\ 100,000 \ 100,000