Exam 13: Comparative Forms of Doing Business

Tuna,Inc.,a closely held corporation which is not a PSC,owns a 40% interest in Trout Partnership,which is classified as a passive activity.Trout's taxable loss for the current year is $200,000.During the year,Tuna receives a $60,000 cash distribution from Trout.Other relevant data for Tuna are as follows: How much of Tuna's share of Trout's loss may it deduct in calculating its taxable income?

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

Ralph owns all the stock of Silver,Inc.,a C corporation for which his adjusted basis is $225,000.Ralph founded Silver 12 years ago.The assets and liabilities of Silver are as follows: *Accumulated depreciation of $55,000 has been deducted. Ralph and the purchaser,Marilyn,have agreed to a purchase price of $350,000 less any outstanding liabilities.They are both in the 35% tax bracket,and Silver is in the 34% tax bracket. a.Advise Ralph on whether the form of the sales transaction should be a stock sale or an asset sale. b.Advise Marilyn on whether the form of the purchase transaction should be a stock purchases or an asset purchase.

Limited liability is possible for the partnership and all the partners when operating as a limited partnership,even if there are no corporate partners.

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 tax form.

Under what circumstances,if any,do the § 469 passive activity loss rules apply to C corporations?

Match the following tax attributes with the different forms. A particular attribute may apply to more than one entity form. a.Ability of all owners to have limited liability. b.Ability to pass tax attributes through to the owners. c.Right of all owners to participate in the management of the business. d.Number of owners is limited. e.Ability to have multiple owners. -General partnership.

Match the following: a.Contribution of appreciated property to the business entity by an owner is never subject to taxation. b.Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. c.Realized losses on the contribution of loss property to the entity are never recognized by the contributor. d.Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied. e.Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity. -Limited partnership.

A taxpayer has an AMT base of $900,000.If the taxpayer is a C corporation,the tentative AMT is $180,000.If the taxpayer is an individual,the tentative AMT is $252,000.

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

The principal legal forms for conducting a business are the sole proprietorship,partnership,limited liability company,and corporation.

Match the following statements: a.For the corporate taxpayer, are 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 20%. 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. -Alternative minimum tax.

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 an ownership interest by a partner.

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Which of the following business entity forms are subject to single taxation on the profits and which are subject to double taxation? a.Sole proprietorship. b.Partnership. c.C corporation. d.S corporation. e.LLC.

Terry transfers land (adjusted basis of $80,000,fair market value of $120,000)to the Olive Partnership for a 49% ownership interest.His basis for the ownership interest is $120,000 and Olive's basis for the land is $120,000 because Terry does not control the partnership .

C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).

Corporate profits have no effect on a C corporation shareholder's stock basis,but will increase an S corporation shareholder's stock basis.

In calculating the owner's initial basis for an ownership interest,which of the following business entity forms have a carryover basis and which have a stepped-up or stepped-down basis associated with its formation? a.C corporation. b.S corporation. c.Partnership.

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $30,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $470,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.