Exam 13: Comparative Forms of Doing Business

The profits of a business owned by Taylor (60%) and Maggie (40%) for the current tax year are $100,000. If the business is a C corporation or an S corporation, there is no effect on Taylor's basis in her stock. If the business is a partnership or an LLC, Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

Albert and Elva each own 50% of the stock of Eagle, Inc. (a C corporation). To cover what is perceived as temporary working capital needs, each shareholder loans Eagle $200,000 with an annual interest rate of 6% (same as the Federal rate) and a maturity date of one year. The loan is made at the beginning of 2013. a. What are the tax consequences to Albert, Elva, and Eagle if the loans are classified as debt? b. What are the tax consequences to Albert, Elva, and Eagle if the loans are classified as equity?

How can double taxation be avoided or reduced by owning assets outside a C corporation?

Match the following 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. -S corporation

List some techniques for reducing and/or avoiding double taxation by transferring funds to the shareholders that are deductible to the corporation.

A sole proprietorship files Schedule C of Form 1040, a partnership files Form 1065, a C corporation files Form 1120, and an S corporation files Form 1120S.

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

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?

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.

Do the § 465 at­risk rules treat recourse debt and nonrecourse debt differently?

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form

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

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 20%. d. Subject to double taxation. e. Eligible for special allocations. -C corporations

Which of the following statements is correct?

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.

Arnold purchases a building for $750,000 which is going to be used by his wholly-owned corporation. Which of the following statements are correct?

Do the § 465 at­risk rules apply to partnerships, LLCs, and S corporations?

Bart contributes $100,000 to the Fish Partnership for a 40% interest. During the first year of operations, Fish has a profit of $20,000. At the end of the first year, Fish has outstanding loans from the following banks. First Bank (recourse) $10,000 Second Bank (nonrecourse) 30,000 What is Bart's at­risk basis in Fish at the end of the first year?

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?

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 individual assets of an unincorporated sole proprietorship by the owner.