Exam 13: Comparative Forms of Doing Business

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. -General partnership

The § 465 at­risk 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.

Which of the following statements is correct?

Anne contributes property to the TCA Partnership which was formed 8 years ago by Clark and Tara. Anne's basis for the property is $90,000 and the fair market value is $220,000. Anne receives a 25% interest for her contribution. Because the TCA Partnership is unsuccessful in having the property rezoned from agricultural to commercial, it sells the property 14 months later for $225,000. a. Determine the tax consequences to Anne and to the partnership on the contribution of the property to the partnership. b. Determine the tax consequences to Anne and the other partners on the sale of the property. b. differ if the entity were an S corporation? c. Would the tax consequences in

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. General partnership. c. Limited partnership. d. C corporation. e. S corporation. f. LLC.

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 has agreed to sell the business to Marilyn and they have agreed on 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.

Lisa is considering investing $60,000 in a limited partnership which is raising additional capital. According to the prospectus, for the past 10-year period the average earnings have been 12% and for the past 5-year period the average earnings have been 9%. Lisa is in the 28% tax bracket. a. List some factors Lisa should consider in making a decision on the potential investment. b. Assuming the partnership finances its activities with equity rather than debt, what is the maximum cash flow benefit Lisa can receive if the partnership generates losses?

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.

A limited liability company (LLC) cannot elect under the check-the-box rules to be taxed as an S corporation.

Which of the following special allocations are mandatory for the partners in a partnership?

Amber, Inc., has taxable income of $212,000. In addition, Amber accumulates the following information which may affect its AMT. -Depreciation on buildings placed in service in the early 1990s was $52,000. ADS would have been $41,000. -The president of Amber exercised stock options on Amber stock. She paid $30,000 for the stock, which had a fair market value at exercise date of $49,000. At the end of the year, the stock was worth $54,000. -Amber deducted percentage depletion of $65,000. The adjusted basis of the natural resource at the beginning of the year was $39,000. -Amber contributed CSX stock worth $20,000 to the Red Cross. Amber purchased the stock four months ago for $19,000. What is Amber's AMTI?

Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest in Trout Partnership, which is classified as a passive activity. Trout's taxable loss for the current year is $250,000. During the year, Catfish receives a $60,000 cash distribution from Trout. Other relevant data for Catfish are as follows: How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income?

From the viewpoint of the entity and the employee recipient, what is the ideal fringe benefit?

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

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.

Malcomb and Sandra (shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest. Which of the following statements are false?

To which of the following entities does the AMT apply? -Sole proprietorship. -General partnership. -Limited partnership. -LLC. -S corporation. -C corporation.

Alice contributes equipment (fair market value of $82,000; adjusted basis of $20,000), subject to a $14,000 liability, to form Orange Partnership, a general partnership. Mary contributes $68,000 cash. Alice and Mary share equally in partnership profits and losses. What is Alice's and Mary's basis for their partnership interests?

In its first year of operations, a corporation projects losses of $400,000. Since losses are involved, the corporation definitely should elect S corporation status.

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. -S corporations