Exam 13: Comparative Forms of Doing Business

Which of the following are techniques for reducing double taxation for a C corporation and its shareholders?

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?

Mallard,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 2010 and 2011 are as follows: Calculate the amount of the ACE adjustment for 2010 and 2011.

A limited liability company:

A corporation may alternate between S corporation and C corporation status each year,depending on which results in more tax savings.

A benefit of an S corporation is that it is never subject to Federal income tax.

Dave contributes land (adjusted basis of $30,000;fair market value of $100,000)to Tan,Inc. ,in exchange for all of its stock.The land is encumbered by a mortgage of $27,000 which Tan assumes.Since the transaction qualifies for nonrecognition treatment under § 351,Tan's adjusted basis for the land is $3,000 ($30,000 - $27,000)and Dave's adjusted basis for the stock is $3,000.

In the sale of a partnership,does the way the sale is structured (i.e. ,sale of the partnership interests versus the sale of the assets)produce different tax consequences?

Which of the following special allocations are mandatory for the partners in a partnership?

Which of the following business entity forms are subject to single taxation on the profits and which are subject to double taxation?

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.

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

Alice contributes equipment (fair market value of $50,000;adjusted basis of $15,000),subject to a $10,000 liability,to form Orange Partnership,a general partnership.Mary contributes $40,000 cash.Alice and Mary share equally in partnership profits and losses.What is Alice's and Mary's basis for their partnership interests?

Both S corporations and C corporations are subject to the accumulated earnings tax.

To the extent of built-in gain at the time of contribution,partnerships may choose to allocate or not allocate gain on the sale of contributed property to the contributing partner.

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

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

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).

Gladys contributes land with an adjusted basis of $85,000 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 $120,000 if:

In its first year of operations,a corporation projects losses of $200,000.Since losses are involved,the corporation definitely should elect S corporation status.