Exam 13: Comparative Forms of Doing Business

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.

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Parrot,Inc. ,a C corporation,distributes $300,000 to its shareholder,Jerome,and land worth $300,000 (adjusted basis of $180,000)to its shareholder,Peggy.Parrot has earnings and profits of $650,000.Determine the tax consequences to Parrot,Jerome,and Peggy.

Samantha's basis for her partnership interest is $112,000.If she receives a cash distribution of $95,000,her recognized gain is $0 and her basis for her partnership interest is reduced to $17,000.Samantha is still a partner after the distribution.

Limited partnerships have the same potential for raising capital as do general partnerships.

Bart contributes $100,000 to the Tuna Partnership for a 40% interest.During the first year of operations,Tuna has a profit of $20,000.At the end of the first year,Tuna has outstanding loans from the following banks. What is Bart's at-risk basis in Tuna at the end of the first year?

In calculating the owner's initial basis for an ownership interest,which of the following business entity forms have a carryover basis and which have a stepped-up or stepped-down basis associated with its formation?

Terry has a 20% ownership interest in a business for which his basis is $100,000.During the year,the entity earns profits of $90,000 and makes cash distributions to the owners of $50,000.How do these transactions affect Terry's basis if:

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

A corporation cannot avoid the accumulated earnings tax by demonstrating that it plans to distribute earnings at a later date.

Devon owns 30% of the Agate Company for which his basis is $200,000.He sells one-forth of his ownership interest to Bernice for $90,000.Which of the following statements is correct?

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder is treated as a dividend,assuming adequate E & P.

The AMT tax rate for a C corporation is greater than the regular tax rate.

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

Barb and Chuck each have a 50% ownership in Wren Partnership.Each partner has a partnership interest basis of $100,000.Wren's taxable income for the current year is $80,000,and it distributes $50,000 to each partner.Barb's basis in the partnership interest at the end of the year is:

Barb and Chuck each own one-half the stock of Wren,Inc. ,an S corporation.Each shareholder has a stock basis of $100,000.Wren has no accumulated E & P.Wren's taxable income for the current year is $80,000,and it distributes $50,000 to each shareholder.Barb's stock basis at the end of the year is:

Wren,Inc.is owned by Alfred (30%)and Mabel (70%).Alfred's marginal tax rate is 25% and Mabel's marginal tax rate is 33%.Wren's taxable income for 2010 is $400,000.

Daisy,Inc. ,has taxable income of $850,000 during 2010,its first year of operations.Daisy distributes dividends of $200,000 to its 10 shareholders (i.e. ,$20,000 each).Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

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?

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.