Exam 13: Comparative Forms of Doing Business

Colin and Reed formed a business entity several years ago.At that date,Colin's basis for his ownership interest was $40,000 and Reed's basis for his ownership interest was $50,000.Colin's profit and loss percentage is 40% and Reed's profit and loss percentage is 60%.During the intervening period,the entity has reported profits of $200,000.At the beginning of the current year,the entity had liabilities (all recourse)of $50,000.At the end of the current year,the liabilities (all recourse)had increased to $70,000.Determine Colin and Reed's basis for their ownership interest if the entity is:

To which of the following entities does the AMT apply?

For a C corporation to be classified as a personal service corporation (PSC)for § 469 purposes,what requirements must be satisfied?

Eagle,Inc.recognizes that it may have an accumulated earnings tax problem.According to its calculation,Eagle anticipates it has accumulated taxable income,before reduction for dividends paid,of $600,000 in 2012.Assume that its shareholders are in the 35% marginal tax bracket.

Albert and Elva each own 50% of the stock of Eagle,Inc.(a C corporation).To cover what is perceived as temporary working capital needs,each shareholder loans Eagle $200,000 with an annual interest rate of 6% (same as the Federal rate)and a maturity date of one year.The loan is made at the beginning of 2012.

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

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.

Kirby,the sole shareholder of Falcon,Inc. ,leases a building to the corporation.The taxable income of the corporation for 2012,before deducting the lease payments,is projected to be $300,000.

Nick owns 60% of the Agate Company for which his basis is $500,000.He sells one-fourth of his ownership interest to Bernice for $190,000.Which of the following statements is correct?

Duck,Inc. ,is a C corporation that is not eligible for the small business exception to the AMT.Its adjusted current earnings (ACE)and unadjusted alternative minimum taxable income (unadjusted AMTI)for 2012 and 2013 are as follows: Calculate the amount of the ACE adjustment for 2012 and 2013.

Gladys contributes land with an adjusted basis of $70,000 and a fair market value of $100,000 to a business entity in which she is an 80% owner on the first day of the tax year.Discuss the tax consequences to Gladys if the business entity sells the land six months later for $130,000 if:

Which of the following statements is incorrect?

Alanna contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity.If the entity is a partnership and the transaction qualifies under § 721,the partnership's basis for the property and the partner's basis for the partnership interest are: Asset Basis Stock Basis

Under what circumstances,if any,do the § 469 passive activity loss rules apply to C corporations?

From the perspective of the seller of a C corporation business whose assets have appreciated,the seller prefers to sell the assets.

Only C corporations are subject to the accumulated earnings tax (i.e. ,S corporations are not).

Why are S corporations not subject to the accumulated earnings tax?

Daniel,who is single,estimates that the profits of his business for the current tax year will be $100,000.Since the highest tax rate (34%)applicable to corporate taxable income of $100,000 is greater than the highest tax rate (28%)applicable to individual taxable income of $100,000,the Federal income tax liability will be less if Daniel conducts his business as a sole proprietorship rather than as a C corporation.

A business entity is not always taxed the same way as its legal form.