As the director of the multistate tax planning department of a consulting firm, you are developing a brochure to highlight the services it can provide. Part of the brochure is a list of five or so key techniques that clients can use to reduce state income tax liabilities. Develop this list for the brochure. Consider only income tax consequences in your analysis.
> Blunt, Inc., a U.S. corporation, earned $600,000 in total taxable income, including $80,000 in foreign-source taxable income from its German branch’s manufacturing operations and $30,000 in foreign-source taxable income from its Swiss branch’s engineerin
> Assume in Problem 28 that the land had a fair market value of $630,000 on the date of its transfer to the corporation. On the date of the liquidation, the land’s fair market value has decreased to $500,000. How would your answer to Problem 28 change if:
> ABC, Inc., a domestic corporation, reports $50 million of taxable income, including $15 million of general limitation foreign-source taxable income, on which ABC paid $5 million in foreign income taxes. The U.S. tax rate is 35%. What is ABC’s foreign tax
> USCo owns 65% of the voting stock of LandCo, a Country X corporation. Terra, an unrelated Country Y corporation, owns the other 35% of LandCo. LandCo owns 100% of the voting stock of OceanCo, a Country Z corporation. Assuming that USCo is a U.S. sharehol
> Evaluate this statement: An S corporation can facilitate the meeting of its state income tax filing obligations by developing a common spreadsheet that allocates and apportions income among the states with which it has nexus. This spreadsheet is attached
> USCo incurred $100,000 in interest expense for the current year. The tax book value of USCo’s assets generating foreign-source income is $5 million. The tax book value of USCo’s assets generating U.S.-source income is $45 million. How much of the interes
> Willa, a U.S. corporation, owns the rights to a patent related to a medical device. Willa licenses the rights to use the patent to IrishCo, which uses the patent in its manufacturing facility located in Ireland. What is the sourcing of the $1 million roy
> Gloria Martinez, an NRA, is a professional golfer. She played in seven tournaments in the United States in the current year and earned $250,000 in prizes from these tournaments. She deposited the winnings in a bank account she opened in Mexico City after
> An exempt organization appropriately makes the § 501(h) election to lobby on a limited basis. The amount of its lobbying expenditures is less than its lobbying expenditures ceiling, yet it is subject to a tax at a 25% rate. Explain.
> For each of the following organizations, determine its UBTI and any related UBIT. a. Worn, Inc., an exempt organization, provides food for the homeless. It operates a thrift store that sells used clothing to the general public. The thrift shop is staffed
> For each of the following items considered independently, indicate whether the circumstances call for an addition modification (A), a subtraction modification (S), or no modification (N) in computing state taxable income. Then indicate the amount of any
> Winston recently became the treasurer of Homeless, Inc., a § 501(c)(3) organization that feeds individuals who are in challenging circumstances. One of the entity’s directors has proposed that Homeless purchase and operate a fast-food franchise, to raise
> Otis is the CEO of Rectify, Inc., a private foundation. Otis invests $500,000 (80%) of the foundation’s investment portfolio in high-risk derivatives. Previously, the $500,000 had been invested in corporate bonds with an AA rating that earned 4% per annu
> State A enjoys a prosperous economy, with high real estate values and compensation levels. State B’s economy has seen better days—property values are depressed, and unemployment is higher than in other states. Most consumer goods are priced at about 10%
> You are working with the top management of one of your clients in selecting the U.S. location for a new manufacturing operation. Craft a plan for the CEO to use in discussions with the economic development representatives of several candidate states. In
> Goose Corporation has a basis of $2.4 million in the stock of Swift Corporation, a wholly owned subsidiary acquired 30 years ago. Goose liquidates Swift Corporation and receives assets that are worth $2 million and have a basis to Swift of $1.7 million.
> Shane and Brittany both serve as treasurer for a § 501(c)(3) exempt organization. Neither exempt organization is a church. Each year, Shane’s exempt organization files a Form 990 while Brittany’s exempt organization files a Form 990–PF. Discuss the publi
> Determine whether the sourcing of income for the following sales is U.S. or foreign. a. Suarez, an NRA, sells stock in Home Depot, a U.S. corporation, through a broker in San Antonio. b. Chris sells stock in IBM, a U.S. corporation, to her brother, Rich.
> Fillon Corporation’s operations include two manufacturing facilities, one in State A and one in State B. The plant located in A generated $200,000 of income, and the plant located in B generated a loss of $50,000. Therefore, Fillon’s total taxable income
> Your client, HillTop, is a retailer of women’s clothing. It has increased sales during the holiday season by advertising gift cards for in-store and online use. HillTop has found that gift card holders who come into the store tend to purchase goods that
> Isle Corporation’s entire operations are located in State A. Of Isle’s $600,000 sales, 60% are made in State A and 40% are made in State B. Isle’s solicitation of sales in State B is limited to mailing a monthly catalog to its customers in that state. Ho
> Indicate whether each of the following items should be allocated or apportioned by the taxpayer in computing state corporate taxable income. Assume that the state follows the general rules of UDITPA. a. Profits from sales activities. b. Profits from cons
> Hosha exchanges all of her Leaf stock for Petal stock plus $5,000 cash. The exchange is pursuant to a tax-free reorganization. Hosha paid $25,000 for the Leaf stock five years ago. The Petal stock received by Hosha has an $18,000 fair market value. a. Wh
> Continue with the facts of Question 4. CheapPhones, one of Josie’s customers who is facing tight cash flow problems, wants to return about 100 defective cell phones. Talk2Me tells Josie to bring the phones back to headquarters. Fearing that she will lose
> Josie is a sales representative for Talk2Me, a communications retailer based in Fort Smith, Arkansas. Josie’s sales territory is Oklahoma, and she regularly takes day trips to Tulsa to meet with customers. During a typical sales call, Josie takes the cus
> Assume the same facts as in Problem 51. Assume that Burgundy, Inc.’s annual guaranteed payment is increased to $120,000 starting on January 1, 2018, and the LLC’s taxable income for 2017 and 2018 (after deducting Burgundy’s guaranteed payment) is the sam
> List some general guidelines that a taxpayer can use to determine whether it has an obligation to file an income tax return with a particular state. (Include the terms nexus and domicile in your answer.)
> Complete the following chart by indicating whether each item is true or false. Explain your answers by referencing the overlap of rules appearing in Federal and most state income tax laws. True or Item False a. Most of the states start with Federal
> What is the purpose of the three rules that implement the economic effect test?
> Continue with the facts of Problem 44. What are the Federal income tax withholding requirements with respect to Martinho’s sale? Who pays the withheld amount to the U.S. Treasury? Facts from Problem 44 Martinho is a citizen of Brazil and lives there yea
> John McPherson is single, an attorney, and a U.S. citizen. He recently attended a seminar where he learned he could give up his U.S. citizenship, move to Bermuda (where he would pay no income tax), and operate his law practice long distance via the inter
> Trace, Ltd., an Allegro corporation, operates a trade or business in the United States. Trace’s U.S.-source income effectively connected with this trade or business is $800,000 for the current year. Trace’s current-year E & P is $600,000. Trace’s net U.S
> When Padgett Properties LLC was formed, Nova contributed land (value of $200,000 and basis of $50,000) and $100,000 cash, and Oscar contributed cash of $300,000. Both members received a 50% interest in LLC profits and capital. a. How is the land recorded
> Abby Wang recently became the treasurer of First Point Church. The church has existed for three years and never has filed any documents with the IRS. a. Identify any Federal income tax reporting responsibilities that Abby might have as church treasurer.
> Wonderful Wilderness, Inc., is a tax-exempt organization. Its mission is to “explore, enjoy, and protect the wild places of the earth; practice and promote the responsible use of the earth’s ecosystems and resources; educate and enlist humanity to protec
> Gray, Inc., a private foundation, reports the following items of income and deductions. Gray is not eligible for the 1% tax rate on net investment income. Interest income……………………………………………………….$ 29,000 Rent income……………………………………………………………….61,000 Dividend
> Burgundy, Inc., and Violet are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed payment of $100,000 for use of capital contributed by Burgundy
> Define the following with respect to unrelated business income from debt financed property. a. Debt-financed income. b. Debt-financed property. c. Acquisition indebtedness.
> Pigeon, Inc., a § 501(c)(3) organization, received support from the following sources. Governmental unit A for services rendered…………………………………………….$ 6,300 Governmental unit B for services rendered……………………………………………….4,500 Fees from the general pub
> Initiate, Inc., a § 501(c)(3) organization, receives the following revenues and incurs the following expenses. Grant from Gates Foundation……………………………………………………$ 70,000 Charitable contributions received………………………………………………..625,000 Expenses in carrying out
> Chang Corporation is part of a three-corporation unitary business. The group has a water’s edge election in effect with respect to unitary State Q. State B does not apply the unitary concept with respect to its corporate income tax laws
> Save, Inc., an exempt organization, sells the following assets during the tax year. Determine the effect of these transactions on Save’s unrelated business taxable income. Asset Gain (Loss) Use Land and building $100,000 In exempt
> Assume the same facts as in Problem 40, with the following exceptions: • Reece purchased the land five years ago for $120,000. Its fair market value was $90,000 when it was contributed to the LLC. • A few years later,
> Kim Corporation, a calendar year taxpayer, operates manufacturing facilities in States A and B. A summary of Kim’s property holdings follows. Determine Kim’s property factors for the two states. The statutes of both
> Paul and Anna plan to form the PA LLC by the end of the current year to produce and sell specialty athletic apparel. Paul and Anna will both serve as member-managers of the LLC and will be active in its operations. The members will each contribute $80,00
> USCo owns 65% of the voting stock of LandCo, a Country X corporation. Terra, an unrelated Country Y corporation, owns the other 35% of LandCo. LandCo owns 100% of the voting stock of OceanCo, a Country Z corporation. Assuming that USCo is a U.S. sharehol
> Money, Inc., a U.S. corporation, has $500,000 to invest overseas. For U.S. tax purposes, any additional gross income earned by Money will be taxed at 34%. Two possibilities for investment are: a. Invest the $500,000 in common stock of Exco (a foreign cor
> This year, Callie and Neil formed the equally owned CN LLC. Callie contributed $300,000 of cash and Neil contributed real estate valued at $450,000 (basis of $100,000). The property was subject to a nonrecourse liability of $150,000 that was assumed by t
> Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest
> What types of expenditures might a new partnership incur? How are those costs treated for Federal tax purposes? Create a chart describing the expenditure, the treatment, and the Code section requiring this treatment.
> How does a partnership calculate depreciation on property that is contributed by a partner? If the partnership incurs additional costs that must be capitalized (i.e., transfer taxes related to changing the title), how are those costs treated?
> On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows: Within 30 days of formation, FM collects the receivables and sells the inventory for $60,000 cash. How much income does FM recognize from
> Compare the provision for the non-recognition of gain or loss on contributions to a partnership (i.e., § 721) with the similar provision related to corporate formation (i.e., § 351). What are the major differences and similarities?
> State E applies a throwback rule to sales, while State F does not. State G has not adopted an income tax to date. Clay Corporation, headquartered in E, reported the following sales for the year. All of the goods were shipped from Clay’s
> Describe how a partnership reports its income for tax purposes. Who makes most elections related to partnership income and deductions? What theory underlies this treatment?
> Wellness, Inc., a § 501(c)(3) organization, makes lobbying expenditures of $340,000 this year. Exempt purpose expenditures were $600,000 for the first six months of the year and $950,000 for the last six months of the year. Determine the Federal income t
> For each of the following organizations, determine its UBTI and any related UBIT. a. AIDS, Inc., an exempt charitable organization that provides support for individuals with AIDS, operates a retail medical supply store open to the general public. The net
> ABC, Inc., a domestic corporation, reports $50 million of taxable income, including $15 million of general limitation foreign-source taxable income, on which ABC paid $5 million in foreign income taxes. The U.S. tax rate is 35%. What is ABC’s foreign tax
> Create a PowerPoint outline describing the major exemptions and exclusions from the sales/use tax base of most states. Use your slides to discuss this topic with your accounting students’ club.
> Quinn Corporation is subject to tax in States G, H, and I. Quinn’s compensation expense includes the following. Officers’ salaries are included in the payroll factor for G and I, but not for H. Compute Quinnâ&#
> A subsidiary corporation is liquidated under § 332. Pursuant to its liquidation, the subsidiary distributed property to a minority shareholder. With respect to this distribution, what are the tax consequences to the subsidiary corporation and to the mino
> Assume the same facts as in Problem 48, except that Suz-Anna was formed as an LLC instead of a general partnership. Facts from Problem 48, Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a
> Assume the same facts as in Problem 48, and assume that Suz-Anna prepares the capital account roll forward on the partners’ Schedules K–1 on a tax basis. Facts from Problem 48 Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange fo
> True Corporation, a wholly owned subsidiary of Trumaine Corporation, generated a $400,000 taxable loss in its first year of operations. True’s activities and sales are restricted to State A, which imposes an 8% income tax. In the same y
> Discuss the tax consequences to the parent corporation in a § 332 liquidation of a subsidiary.
> Your client, Rich N. Ready, has come to you for advice. Rich is interested in many social welfare issues (e.g., access to higher education, welfare reform, and abortion rights). He wishes to use his wealth to educate the general public on these issues, a
> BlueCo, a domestic corporation, incorporates GreenCo, a new wholly owned entity in Germany. Under both German and U.S. legal principles, this entity is a corporation. BlueCo faces a 35% U.S. tax rate. GreenCo earns $1,500,000 in net profits from its Germ
> Emma, a U.S. resident, received the following income items for the current tax year. Identify the sourcing of each income item as either U.S. or foreign. a. $600 interest from a savings account at a Florida bank. b. $5,000 dividend from U.S. Flower Comp
> Hart Enterprises, a U.S. corporation, owns 100% of OK, Ltd., an Irish corporation. OK’s gross income for the year is $10 million. Determine OK’s Subpart F income (before any expenses) from the transactions that it reported this year. a. OK received $600
> Perch, Inc., an exempt organization, records unrelated business taxable income of $4 million. a. Calculate Perch’s UBIT. b. Prepare an outline of a presentation you are going to give to the new members of Perch’s board on why Perch is subject to the UBIT
> Packard, Inc., a domestic corporation, operates a branch in Mexico. Over the last 10 years, this branch has generated $30 million in losses. For the last 3 years, however, the branch has been profitable and has earned enough income to entirely offset the
> “U.S. persons are taxed on their worldwide income.” Explain.
> HiramCo, a U.S. entity, operates a manufacturing business in both Mexico and Costa Rica, and it holds its investment portfolio in Sweden. How many foreign tax credit computations must HiramCo make? Be specific, and use the term basket in your answer.
> Teal, Inc., a foreign corporation, pays a dividend to its shareholders on November 30. Red, Inc., a U.S. corporation and 7% shareholder in Teal, receives a dividend of 10,000K (a foreign currency). Pertinent exchange rates are as follows. November 30………
> Molly, Inc., a domestic corporation, owns 15% of PJ, Inc., and 12% of Emma, Inc., both foreign corporations. Molly is paid gross dividends of $35,000 and $18,000 from PJ and Emma, respectively. PJ withheld and paid more than $10,500 in foreign taxes on t
> QuinnCo could not claim all of the income taxes it paid to Japan as a foreign tax credit (FTC) this year. What computational limit probably kept QuinnCo from taking its full FTC? Explain.
> Liang, a U.S. citizen, owns 100% of ForCo, a foreign corporation not engaged in a U.S. trade or business. Is Liang subject to any U.S. income tax on her dealings with ForCo? Explain.
> Draft a short speech that you will give to your university’s Business Club. The title of your talk is “What Is Worldwide Taxation and How Can I Avoid It?” Be certain to include the term territorial taxing system in your presentation.
> The stock of Mulberry Corporation is owned by Archana (60%) and Anar (40%), who are mother and daughter. Pursuant to a plan of complete liquidation adopted earlier in the current year, Mulberry distributes land worth $575,000 to Anar (basis of $100,000 i
> Castle Corporation conducts business in States 1, 2, and 3. Castle’s $630,000 taxable income consists of $555,000 apportionable income and $75,000 allocable income generated from transactions conducted in State 3. Castle’s sales, property, and payroll ar
> What is a guaranteed payment? How is it reported on Form 1065 and its various schedules? How is it reported to and by the partner?
> Write a memo for the tax research file on the difference between “inbound” and “outbound” activities in the context of U.S. taxation of international income.
> Sunset, Inc., a § 501(c)(3) exempt organization that is classified as a private foundation, generates investment income of $500,000 for the current tax year. This amount represents 18% of Sunset’s total income. a. What type of tax is imposed on Sunset as
> Five unrelated U.S. individuals own all of the shares of Popping, a corporation organized in the United States but operating fully in the country Vivace. Mariam, one of the shareholders, asks you whether the income from Popping will be taxed to her immed
> Joy Marcus owns several income-producing assets, including a stock portfolio and a small services proprietorship. She wants to start up a new corporation in the country Molto, where the income tax rates are about one-third of those in the United States,
> Randall operates his distribution business in several countries. He wants to move some equipment to a new office in South Africa. This equipment includes assets with a large acquisition price and accumulated MACRS depreciation. The assets to be transferr
> Honk, Inc., a U.S. corporation, purchases weight-lifting equipment for resale from HiDisu, a Japanese corporation, for 60 million yen. On the date of purchase, 105 yen is equal to $1 U.S. (¥105:$1). The purchase is made on December 15, 2016, with payment
> Indeco, a U.S. C corporation, operates Grange, a sales branch in Staccato. Indeco’s U.S. corporate marginal tax rate is 35%; it is 20% for Staccato. Grange’s pre-tax profit for the year is $1 million. There is no incom
> Klein, a domestic corporation, receives a $10,000 dividend from ForCo, a wholly owned foreign corporation. The deemed-paid FTC associated with this dividend is $3,000. What is the total gross income included in Klein’s tax return as a result of this divi
> Cordeio, Inc., is a CFC for the entire tax year (not a leap year). Vancy Company, a U.S. corporation, owns 75% of Cordeio’s one class of stock for the entire year. Subpart F income is $450,000, and no distributions have been made during the year. Both en
> Shonda receives dividend income from the following foreign and domestic corporations in the current tax year. Determine the amount of U.S.-sourced income for each corporation. Percentage of U.S. Income for Past 3 Years Dividends Corporation Receive
> When can a partnership use the cash method of accounting?
> Tom is the treasurer of the City Garden Club, a new entity in the community. A friend who is the treasurer of the garden club in a neighboring community tells Tom that it is not necessary for City Garden Club to file a request for exempt status with the
> Velocity, Inc., a foreign corporation, operates a U.S. branch. It reports the following tax results and other information for the year. Pretax earnings effectively connected with a U.S. trade or business………$900,000 U.S. corporate tax (at 34%)……………………………
> Enders, Inc., a domestic corporation that invests in foreign securities, reports total taxable income for the tax year of $290,000, consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign sources. Foreign taxes of $24,00
> Use Exhibit 24.1 to provide the required information for Warbler Corporation, whose Federal taxable income totals $10 million. Warbler apportions 70% of its manufacturing income to State C. Warbler generates $4 million of nonapportionable income each yea
> Pursuant to a complete liquidation, Oriole Corporation distributes to its shareholders land held for three years as an investment (adjusted basis of $250,000, fair market value of $490,000). The land is subject to a liability of $520,000. a. What are the
> Although private foundations generally are exempt from Federal income tax, they may be subject to two types of certain excise taxes. Identify these taxes, and discuss why they are imposed on private foundations.
> Dread Corporation operates in a high-tax state. The firm asks you for advice on a plan to outsource administrative work done in its home state to independent contractors. This work now costs the company $750,000 in wages and benefits. Dread’s total payro
> Indicate for each transaction whether a sales (S) or use (U) tax applies or whether the transaction is nontaxable (N). Where the laws vary among states, assume that the most common rules apply. All taxpayers are individuals. a. A resident of State A purc
