Exam 13: Comparative Forms of Doing Business

Melanie and Sonny form Bird Enterprises. Sonny contributes cash of $100,000 and land worth $50,000 (adjusted basis of $30,000). Melanie contributes land and building worth $280,000 (adjusted basis of $200,000) and performs services worth $20,000 associated with the formation of the entity. Melanie receives a two-thirds ownership interest and Sonny receives a one-third ownership interest. Determine the tax consequences of the contributions to Melanie, Sonny, and Bird if the business is:

When a C corporation is classified as a small corporation for AMT purposes, both the corporation and its shareholders are exempt from the AMT.

Personal service corporations can offset passive activity losses against active income, but not against portfolio income.

The ACE adjustment associated with the C corporation AMT can only be positive.

Wally contributes land (adjusted basis of $30,000; fair market value of $100,000) to an S corporation in a transaction which 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.

Which of the following statements is correct?

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

The § 465 at-risk provision and the § 469 passive activity loss provision have decreased the tax attractiveness of investments in real estate for partnerships and for limited liability companies.

Steve and Karen are going to establish a business entity. 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?

Trolette 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 C corporation and the transaction qualifies under § 351, the corporation's basis for the property and the shareholder's basis for the stock are: Asset Basis Stock Basis

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

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

Bart contributes $160,000 to the Tuna Partnership for a 30% interest. During the first year of operations, Tuna has a profit of $30,000. At the end of the first year, Tuna has outstanding loans from the following banks. What is Bart's at-risk basis in Tuna at the end of the first year?

A business entity is not always taxed the same way as its legal form.

For a C corporation to be classified as a personal service corporation (PSC) for § 469 purposes, what requirements must be satisfied?

From the perspective of the seller of a C corporation business whose assets have appreciated, the seller prefers to sell the assets.

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

Brown, Inc., has accumulated earnings and profits at the end of the year of $600,000. Brown pays a salary and bonus of $175,000 to Alice, its CEO. Brown's taxable income before the salary and bonus is $200,000. The IRS classifies $75,000 of the salary and bonus as unreasonable. Calculate Brown's taxable income after the reclassification.

Mercedes owns a 40% interest in Teal Partnership (basis of $35,000) which she sells to Eric for $60,000. Mercedes' recognized gain of $25,000 will be classified as capital gain.

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.