Exam 13: Comparative Forms of Doing Business

Agnes owns a sole proprietorship for which the assets have appreciated in value.If she is going to sell the business to Abner,should she structure the sale as (1)a sale of the individual assets or (2)a sale of the sole proprietorship?

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.

Pelican,Inc. ,a C corporation,distributes $275,000 to its shareholder,Jean,and land worth $275,000 (adjusted basis of $185,000)to its shareholder,Pam.Pelican has earnings and profits of $900,000.Determine the tax consequences to Pelican,Jean,and Pam.

Kirk is establishing a business in 2012 which could have potential environmental liability problems.Therefore,he is trying to decide between the C corporation form and the S corporation form.He projects that the business will generate losses of approximately $100,000 each year for the first 3 years and then will generate profits of at least $200,000 each year thereafter.All profits will be reinvested in the growth of the business.Kirk projects he will be in the 35% bracket in 2012 and thereafter.Advise Kirk on which tax form he should select.

Swallow,Inc. ,is going to make a distribution of $700,000 to Marjean who is in the 35% tax bracket.

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

Sam and Vera are going to establish a business.Sam will contribute cash of $100,000 for a 50% interest,and Vera will contribute land and a building worth $135,000 (adjusted basis of $65,000)for a 50% interest.The land and building is encumbered by a $35,000 mortgage which the entity assumes.Determine the tax consequences of the contribution to Sam,Vera,and the entity if the business is:

Aubrey has been operating his business as a C corporation for the past 5 years.The corporation pays him a reasonable salary.The profits of the corporation,after paying Federal income tax,are distributed to him each year as a dividend.He is considering electing S status for his corporation in order to avoid double taxation.What factors should he consider assuming after-tax earnings will continue to be distributed to him?

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

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

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:

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

A limited partner in a limited partnership has limited liability whereas a general partner in a limited partnership has unlimited liability unless the limited partners agree that the general partner will have limited liability.

With proper tax planning,it is always possible for a C corporation and its shareholders to avoid double taxation.

Bart contributes $200,000 to the Fish Partnership for a 40% interest.During the first year of operations,Fish has a profit of $60,000.At the end of the first year,Fish has outstanding loans from the following banks. What is Bart's at-risk basis in Fish at the end of the first year?

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: Asset Basis Stock Basis

Amos contributes land with an adjusted basis of $150,000 and a fair market value of $200,000 to White,Inc. ,an S corporation,in exchange for 50% of the stock of White,Inc.Carol contributes cash of $200,000 for the other 50% of the stock.If White later sells the land for $225,000,$62,500 [$50,000 + 50%($25,000)] is allocated to Amos and $12,500 ($25,000 ´ 50%)is allocated to Carol.

Which of the following is not a reason why a corporation would want to elect S corporation status?

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 and the purchaser,Marilyn,have agreed to 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.

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?