Exam 18: Comparative Forms of Doing Business

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

If an S corporation distributes appreciated property as a dividend, it must recognize gain related to the appreciation.

Tuan and Ella are going to establish a business.They expect the business to be very successful in the long-run, but project losses of approximately $100,000 for each of the first five years.Due to potential environmental concerns, limited liability is a requisite for the owners.Which form of business entity should they select?

Match the following statements. a.For the corporate taxpayer, taxed using the regular tax rates. b.Must be capitalized, but can be amortized over 180 months. c.For the corporate taxpayer, the rate is 21%. d.For the corporate taxpayer, cannot be deducted at all in the current tax year. e.For the corporate taxpayer, limited to 10% of taxable income before certain deductions. -Net capital gain

Albert's sole proprietorship owns the following assets. Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Wally contributes land (adjusted basis of $30,000; fair market value of $100,000) to an S corporation in a transaction that qualifies under § 351.The corporation subsequently sells the land for $120,000, recognizing a gain of $90,000 ($120,000 - $30,000).If Wally owns 30% of the stock, $76,000 [$70,000 + 30%($20,000)] of the $90,000 recognized gain is allocated to Wally.

Match the following statements. a.Usually subject to single taxation even if the entity is incorporated. b.Not making distributions to shareholders. c.Rate for a corporate taxpayer is 21%. d.Subject to double taxation. e.Eligible for special allocations. -C corporations

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 is classified as capital gain.

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

Candace, who is in the 32% tax bracket, is establishing a business that 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.

Some fringe benefits always provide a double benefit-a deduction for the employer and an exclusion for the employee.

Match the following statements. a.Usually subject to single taxation even if the entity is incorporated. b.Not making distributions to shareholders. c.Rate for a corporate taxpayer is 21%. d.Subject to double taxation. e.Eligible for special allocations. -Regular tax rate

After an asset contribution by a partner to a partnership, the partner's basis for his or her ownership interest is the same as the basis of the assets contributed (if no liabilities are involved).

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

Match the following statements. a.Usually subject to single taxation even if the entity is incorporated. b.Not making distributions to shareholders. c.Rate for a corporate taxpayer is 21%. d.Subject to double taxation. e.Eligible for special allocations. -Partnerships

C corporations are not subject to AMT but individuals are.

Khalid contributes land (fair market value of $700,000; adjusted basis of $200,000) and Dan contributes $700,000 cash to form Teal Partnership.Both Khalid and Dan own a 50% interest.One year later, Teal sells the land for $800,000.How much gain is recognized by each partner?

An individual who owes the NIIT cannot also be subject to the additional Medicare tax.

Kirk is establishing a business in year 1 that 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 three 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.

Both Thu and Tuan 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.Thu's stock basis at the end of the year is: