Exam 13: Comparative Forms of Doing Business

The extent of double taxation on shareholders may be reduced if corporate distributions qualify as a return of capital.

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

Gladys contributes land with an adjusted basis of $85,000 and a fair market value of $100,000 to a business entity in which she is an 80% owner on the first day of the tax year.Discuss the tax consequences to Gladys if the business entity sells the land six months later for $120,000 if: a.The business entity is a partnership? b.The business entity is a C corporation? c.The business entity is an S corporation?

Julie is going to contribute the following assets to a business entity in exchange for an ownership interest. What are the tax consequences of the contribution to Julie if the business entity is a(n): a.Sole proprietorship? b.Partnership? c.C corporation? d.S corporation?

Match the following statements: a.Status applies only if elected by the taxpayer. b.Not making distributions to shareholders. c.Rate for a corporate taxpayer is 20%. d.Subject to double taxation. e.Eligible for special allocations. -S corporations.

What planning opportunity may be available for a C corporation that incurs the alternative minimum tax (AMT)each year because of the ACE adjustment?

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?

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?

Some fringe benefits always provide a deduction for the employer and are always excluded from the gross income of the employee.

If lease rental payments to a shareholder-lessor are classified as unreasonable,the effect on the corporation is to increase taxable income and the effect on the shareholder is to increase gross income.

Match the following statements: a.Transaction in this form enables double taxation to be avoided. b.Gain or loss is calculated separately for each asset and is subject to single taxation. c.Subject to double taxation. d.The sale is treated as the sale of a capital asset under § 741 subject to ordinary income potential under § 751. e.Not subject to double taxation on the sale of corporate stock. -Sale of the corporate assets by the C corporation.

Making distributions to shareholders that are deductible to a C corporation can reduce or eliminate double taxation.

Agnes is going to invest $90,000 in a business entity.She will manage the business entity.Her projected share of the loss for the first year is $36,000.Agnes' marginal tax rate is 33%.Determine the cash flow benefit of the loss to Agnes if the business form is: a.A general partnership. b.An S corporation. c.An LLC. d.A C corporation.

A corporation can avoid the accumulated earnings tax by demonstrating that it plans to distribute earnings at a later date.

Sean and Vickie are going to establish a business.Sean will contribute cash of $250,000 for a 50% interest,and Vickie will contribute land and a building worth $270,000 (adjusted basis of $90,000)for a 50% interest.The land and building is encumbered by a $20,000 mortgage which the entity assumes. a.Determine the tax consequences of the contribution to Sean, Vickie, and the entity if the business is an S corporation. b.Determine the tax consequences of the contribution to Sean, Vickie, and the entity if the business is a partnership. c.Determine the tax consequences of the contribution to Sean, Vickie, and the entity if the business is a C corporation.

Swallow,Inc.,is going to make a distribution of $900,000 to Marjean who is in the 35% tax bracket. a.Determine the tax liability to Marjean if the form of the distribution is a dividend. b.Determine the tax liability to Marjean if the form of the distribution is a stock redemption. Assume Marjean's adjusted basis for the stock redeemed is $250,000 and that she has owned the stock for two years.

If a C corporation has earnings and profits at least equal to the amount of a distribution,the tax consequences to the shareholders are the same,regardless of whether the distribution is classified as a dividend or as a stock redemption.

Both S corporations and C corporations are subject to the accumulated earnings tax.

List the various ways to minimize or avoid double taxation for a corporate taxpayer.

Terry has a 20% ownership interest in a business for which his basis is $100,000.During the year,the entity earns profits of $90,000 and makes cash distributions to the owners of $50,000.How do these transactions affect Terry's basis if: a.The entity is a C corporation? b.The entity is a general partnership?