Exam 13: Comparative Forms of Doing Business

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.

Nontax factors that affect the choice of business entity include:

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

Blue, Inc., has taxable income before salary payments to its president of $700,000 in 2014. Blue is in the 34% tax bracket, and the president is in the 35% tax bracket. a. Calculate the tax liability to Blue if the president's salary is $400,000 and if it is $100,000. b. What tax benefit is there of paying the larger salary to the president? c. What negative tax result may occur associated with the payment of the higher salary?

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

A limited liability company:

To the extent of built-in gain or built-in loss at the time of contribution, partnerships may choose to allocate or not allocate this built-in gain or loss to the contributing partner on the sale of the contributed property by the partnership.

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

Which of the following statements is incorrect?

Martin contributes property with an adjusted basis of $100,000 and a fair market value of $140,000 to a newly formed business entity. If the entity is an S corporation and the transaction qualifies under § 351, the S corporation's basis for the property and the shareholder's basis for the stock are: E) None of the above.

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. -Net capital loss

Techniques are available that may permit a C corporation to avoid double taxation.

Melba contributes land (basis of $190,000; fair market value of $250,000) to a business entity in exchange for 100% of the stock. During the first year of operations, the entity earns a profit of $75,000. At the end of the first year, the entity has outstanding liabilities of $30,000 ($20,000 recourse and $10,000 nonrecourse).

In the sale of a partnership, does the way the sale is structured (i.e., sale of the partnership interests versus the sale of the partnership assets) produce different tax consequences for the sellers?

When compared to a partnership, what additional requirement applies to keep a contribution of appreciated property to a corporation from causing recognized gain?

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Beige, Inc., has 3,000 shares of stock authorized and 1,000 shares outstanding. The shares are owned by Sam (700 shares) and Lois (300 shares). Sam's adjusted basis for his stock is $100,000 and Lois' adjusted basis for her stock is $90,000. Beige's earnings and profits are $500,000. Beige redeems 200 of Lois' shares for $150,000. Determine the amount of Lois' recognized gain (1) if she is Sam's mother and (2) if they are unrelated.

The special allocation opportunities that are available to partnerships are available to S corporations only if affected shareholders elect to do so.

Paul's AMT base is $450,000. Green, Inc.'s (a C corporation) AMT base also is $450,000. a. Calculate the tentative AMT for Paul (assume the higher bracket begins above $175,000). b. Calculate the tentative AMT for Green, Inc. c. Why are the amounts in a. and b. not the same since the AMT base for both is $450,000? d. Would your answer in b. change if Green, Inc. was an S corporation?

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 will be classified as capital gain.