Exam 13: Comparative Forms of Doing Business

Mr.and Ms.Smith's partnership owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Mr)and Ms.Smith each have a basis for their partnership interest of $135,000.Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

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?

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.

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

C corporations and their shareholders are subject to double taxation.S corporations and their shareholders typically are subject to single taxation.Therefore,for any given amount of corporate taxable income,the combined tax liability of a C corporation and its shareholders will exceed that of an S corporation and its shareholders.

Trolette 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 C corporation and the transaction qualifies under § 351,the corporation's basis for the property and the shareholder's basis for the stock are: Asset Basis Stock Basis

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Lime,Inc. ,has taxable income of $330,000.If Lime is a C corporation,its tax liability must be $111,950 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($230,000 ´ 39%)].

A C corporation that is classified as a small corporation is exempt from the AMT.

Depending on the election made under the check-the-box provisions,a limited liability company (LLC)with two or more owners might have to file a Form 1065 or a Form 1120.

Blue,Inc. ,has taxable income before salary payments to its president of $700,000 in 2010.Blue is in the 34% tax bracket,and the president is in the 35% tax bracket.

Techniques that can be used to minimize the current period tax liability include:

Tonya contributes $150,000 to Swan,Inc. ,for 75% of the stock.In addition,she loans Swan $450,000.The maturity date on the loan is 5 years and the interest rate is 8%,the same as the Federal rate.Which of the following statements are correct?

Swallow,Inc. ,is going to make a distribution of $900,000 to Marjean who is in the 35% tax bracket.

Amos contributes land with an adjusted basis of $70,000 and a fair market value of $100,000 to White,Inc. ,an S corporation,in exchange for 50% of the stock of White,Inc.Carol contributes cash of $100,000 for the other 50% of the stock.If White later sells the land for $110,000,$35,000 [$30,000 + 50%($10,000)] is allocated to Amos and $5,000 ($10,000 ´ 50%)is allocated to Carol.

Paying reasonable compensation to a shareholder-employee avoids double taxation on the amount of the compensation.

Which of the following is descriptive of the accumulated earnings tax?

Which of the following statements is correct?

Amber,Inc. ,has taxable income of $212,000.In addition,Amber accumulates the following information which may affect its AMT. What is Amber's AMTI?

It is easier to satisfy the § 721 requirements for the nonrecognition of gain or loss on partner contributions than it is to satisfy the § 351 requirements for the nonrecognition of gain or loss on shareholder contributions.