Exam 13: Comparative Forms of Doing Business

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.

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

Maurice purchases a bakery from Philip for $410,000.He spends an additional $150,000 (financed with a nonrecourse loan)updating the bakery equipment.During the first year of operations as a sole proprietorship,the bakery incurs a loss of $125,000.Maurice has $300,000 of salary income as the chief financial officer of a publicly-traded corporation.He has interest income of $30,000 and dividend income of $50,000.

A limited liability company (LLC)is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of a partnership.

Only shareholders who own greater than 10% of an S corporation's stock are treated as partners and,thus,as nonemployees for fringe benefit treatment.

What special adjustment is required in calculating the AMT of a C corporation that does not apply in calculating the AMT of an individual taxpayer?

Barb and Chuck each own one-half the stock of Wren,Inc. ,an S corporation.Each shareholder has a stock basis of $175,000.Wren has no accumulated E & P.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each shareholder.Barb's stock basis at the end of the year is:

Arthur is the sole shareholder of Purple,Inc.Purple's taxable income before the payment of Arthur's salary is $300,000.Based on this information,Arthur has the corporation pay him a salary of $200,000 and a bonus of $100,000.A reasonable salary and bonus would be $175,000.Which of the following is correct?

The § 465 at-risk 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 special allocations are mandatory for the partners in a partnership?

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

For a limited liability company with 100 unrelated owners:

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.

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?

Normally a C corporation shareholder would prefer to receive a return of capital distribution (e.g. ,stock redemption)rather than a dividend distribution.Provide an example of where the opposite is true.

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).

Shania,Taylor,and Kelly form a corporation with the following contributions.

Each of the following can pass profits and losses through to the owners: general partnership,limited partnership,S corporation,and limited liability company.

The check-the-box Regulations have made it easier for a business entity to be classified as a partnership for Federal income tax purposes.

What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?