Exam 13: Comparative Forms of Doing Business

Wally contributes land (adjusted basis of $30,000;fair market value of $100,000)to a C corporation in a transaction which qualifies under § 351.The corporation subsequently sells the land for $120,000,recognizing a gain of $90,000 ($120,000 - $30,000).If Wally owns 30% of the stock,$76,000 [$70,000 + 30%($20,000)] of the $90,000 recognized gain is allocated to Wally.

Rocky and Sandra (shareholders)each loan Eagle Corporation $10,000 at the market rate of 10% interest.Which of the following statements are false?

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.

Angie has a 60% ownership interest in a business entity.She is in the 33% tax bracket.The entity incurs $20,000 of meals and lodging expense for Angie,which she believes qualify for exclusion under § 119.Which of the following statements is correct?

Sam owns 30% of the stock of Gold,Inc.(adjusted basis of $300,000).Gold redeems 70% of Sam's shares for $500,000.If the stock redemption qualifies for return of capital treatment,Sam's recognized gain is $200,000.

Mercedes owns a 40% interest in Teal Partnership (basis of $35,000)which she sells to Eric for $60,000.Mercedes' recognized gain of $25,000 will be classified as capital gain.

Brenda contributes appreciated property to her business entity in a transaction which qualifies for nonrecognition of gain.Brenda's ownership interest is 60%.The business entity later sells the appreciated property for $110,000.The property is not depreciable.Which of the following statement(s)is correct?

If lease rental payments to a shareholder-lessor are classified as unreasonable,the effect on the corporation is to increase taxable income and the effect on the shareholder is to increase gross income.

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

A business entity is always taxed the same way as its legal form.

The AMT statutory rate for both C and S corporations on the first $175,000 of AMT base is 20%.