Exam 13: Comparative Forms of Doing Business

Roger owns 40% of the stock of Gold, Inc. (adjusted basis of $800,000). Silver redeems 60% of Roger's shares for $900,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $100,000.

Factors that should be considered in making the S corporation election for the current tax year include the following:

Ashley has a 65% interest in a business entity. Her basis for her ownership interest is $300,000. The net income of the business for the tax year is $100,000 and the entity liabilities have increased by $60,000. Determine the effect of the earnings and the liabilities on Ashley's basis for her ownership interest if the business is: a. A C corporation. b. An S corporation. c. A partnership.

Molly transfers land with an adjusted basis of $28,000 and a fair market value of $65,000 to the Sand Partnership for a 30% ownership interest. The land is encumbered by a mortgage of $18,000 which the partnership assumes. Her basis for her ownership interest is $10,000 ($28,000 - $18,000).

Robin Company has $100,000 of income before payment of $100,000 of reasonable salaries to its owners/employees (who are in the 33% bracket). Which form of business results in the least amount of combined tax being paid by the company and its owners?

Why does stock redemption treatment for an individual shareholder produce more favorable tax consequences than a dividend?

List some techniques which can be used to avoid and/or reduce double taxation for a C corporation.

All of the shareholders of an S corporation have limited liability with respect to their ownership interests in the corporation, whereas only limited partners in a limited partnership have such limited liability.

The legal form of Edith and Fran's business entity is an LLC. Under the check­the­box Regulations, what options are available to them for Federal income tax purposes? Which option would you normally recommend?

An S corporation is not subject to the AMT, but its shareholders are in that the S corporation's AMT adjustments and preferences are passed through to them.