Compare and contrast federal/state tax differences and book/federal tax differences.
> What are the two categories of income that can be taxed by the United States when earned by a nonresident? How does the United States tax each category of income?
> Cathy, Heathcliff, and Isabelle are equal shareholders in Wuthering Heights (WH), an S corporation. Heathcliff has decided he would like to terminate the S election. In the following alternative scenarios, indicate whether the termination will occur and
> What are the major U.S. tax issues that apply to an outbound transaction?
> What are the major U.S. tax issues that apply to an inbound transaction?
> True or False: Subpart F income is always treated as a deemed dividend to the U.S. shareholders of a controlled foreign corporation. Explain.
> Discuss why restaurant meals, rental cars, and hotel receipts are often taxed at a higher-than-average sales tax rate.
> What is foreign base company sales income? Why does the United States include this income in its definition of subpart F income?
> True or False: A foreign corporation owned equally by 11 U.S. individuals can never be a controlled foreign corporation? Explain.
> True or False: A taxpayer will always prefer deducting an expense against U.S. source income and not foreign source income when filing a tax return in the United States. Explain.
> Why does the United States not allow deferral on all foreign source income earned by a controlled foreign corporation?
> Guido is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 2014, Guido came to the United States for the first time. The sole purpose of his trip was business. He intended t
> What are the requirements for a foreign corporation to be a controlled foreign corporation for U.S. tax purposes?
> What is a “per se” entity under the check-the-box rules?
> What is a hybrid entity for U.S. tax purposes? Why is a hybrid entity a popular organizational form for a U.S. company expanding its international operations? What are the potential drawbacks to using a hybrid entity?
> What is a functional currency? What role does it play in the computation of an indirect credit for foreign tax credit purposes?
> Missy is one of 100 unrelated shareholders of Dalmatian, an S corporation. She is considering selling her shares. Under the following alternative scenarios, would the S election be terminated? Why or why not? a. Missy wants to sell half her shares to a f
> What is an indirect credit for foreign tax credit purposes? What is the tax policy reason for allowing such a credit?
> Describe how the failure to collect sales tax can result in a larger tax liability for a business than failing to pay income taxes.
> True or False: All dividend income received by a U.S. taxpayer is classified as passive category income for foreign tax credit limitation purposes. Explain.
> What are the potential U.S. tax benefits from engaging in a §863(b) sale?
> In what circumstances would a business be subject to income taxes in more than one state?
> Jane has been operating Mansfield Park as a C corporation and decides she would like to make an S election. What is the earliest the election will become effective under each of these alternative scenarios? a. Jane is on top of things and makes the elec
> Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United States, Canada, England, and Australia. Spartan markets its products in Canada and England through branches in Toronto and
> Windmill Corporation manufactures products in its plants in Iowa, Canada, Ireland, and Australia. Windmill conducts its operations in Canada through a 50 percent owned joint venture, CanCo. CanCo is treated as a corporation for U.S. and Canadian tax purp
> LeMond Incorporated, a Wisconsin corporation, runs bicycle tours in several states. LeMond also has a Wisconsin retail store and an Internet store that ships to out-of-state customers. The bicycle tours operate in Colorado, North Carolina, and Wisconsin
> Last year, Reggie, a Los Angeles, California resident, began selling autographed footballs through Trojan Victory (TV), Incorporated, a California corporation. TV has never collected sales tax. Last year TV had sales as follows: California ($100,000), Ar
> USCo manufactures and markets electrical components. USCo operates outside the United States through a number of CFCs, each of which is organized in a different country. These CFCs derived the following income for the current year. Determine the amount o
> Kai operates the Surf Shop in Laie, Hawaii, which designs, manufacturers, and customizes surf boards. Hawaii has a 4 percent excise tax technically paid by the seller. However, the state also allows "tax on tax" to be charged, which effectively means a c
> Melanie operates Mel’s Bakery in Foxboro, Massachusetts with retail stores in Connecticut, Maine, Massachusetts, New Hampshire, and Rhode Island. Mel’s also ships specialty breads nationwide upon request. Determine Mel’s sales tax collection responsibili
> Crazy Eddie Incorporated manufactures baseball caps and distributes them across the northeastern United States. The firm is incorporated and headquartered in New York and sells to customers in Connecticut, Delaware, Massachusetts, New Jersey, New York, O
> Ashton Corporation is headquartered in Pennsylvania and has a state income tax base there of $500,000. Of this amount, $50,000 was non-business income. Ashton’s Pennsylvania apportionment factor is 42.35 percent. The nonbusiness income allocated to Penns
> Mark is the sole shareholder of Tex Corporation. Mark first formed Tex as a C corporation. However, in an attempt to avoid having Tex’s income double taxed, Mark elected S corporation status for Tex several years ago. On December 31, 2016, Tex reports $5
> Brady Corporation is a Nebraska Corporation, but owns business and investment property in surrounding states as well. Determine the state where each item of income is allocated. a. $15,000 of dividend income. b. $10,000 of interest income. c. $15,000 of
> Susie’s Sweet Shop has the following sales, payroll and property factors: What are Susie’s Sweet Shop’s Iowa and Missouri apportionment factors under each of the following alternative scenarios? a. I
> Lucy and Ricky Ricardo live in Los Angeles, California. After they were married, they started a business named ILL Corporation (a C corporation). For state law purposes, the shares of stock in ILL Corp. are listed under Ricky’s name only. Ricky signed th
> Delicious Dave’s Maple Syrup, a Vermont Corporation, has property in the following states: What are the property apportionment factors for Maine, Massachusetts, New Hampshire, and Vermont in each of the following scenarios? a. Deliciou
> Nicole’s Salon, a Louisiana Corporation, operates beauty salons in Arkansas, Louisiana, and Tennessee. These salon’s payroll by state, are as follows: Nicole’s…………….…….....Salon State…………………..….. Payroll Arkansas…………………..…..$130,239 Louisiana…………………..…
> Bad Brad sells used semi-trucks and tractor trailers in the Texas panhandle. Bad Brad has sales as follows: Bad……………………………………………Brad State………………………………………….Sales Colorado………………………………$234,992 Oklahoma……………………………….402,450 New Mexico…………………………..675,204 Tex
> Hughie, Dewey, and Louie are equal shareholders in HDL, an S corporation. HDL’s S election terminates under each of the following alternative scenarios. When is the earliest it can again operate as an S corporation? a. The S election terminates on August
> Herger Corporation does business in California, Nevada, and Oregon and has nexus in these states as well. Herger’s California state tax base was $921,023 after making the required federal/state adjustments. Herger’s federal tax return contains the follow
> Bulldog Incorporated is a Georgia corporation. It properly included, deducted, or excluded the following items on its federal tax return in the current year: Use Georgia’s Corporate Income Tax Form 600 and Instructions to determine what
> Use California Publication 1061 (2013) to determine the various tests California uses to determine whether two or more entities are part of a unitary group.
> What types of property sales are subject to a sales tax and why might a state choose to exclude the sales of certain types of property?
> Peter Inc., a Kentucky corporation, owns 100 percent of Suvi Inc., a Mississippi corporation. Peter and Suvi file a consolidated federal tax return. Peter has income tax nexus in Kentucky and South Carolina. Suvi in Mississippi and South Carolina. Kentuc
> Software Incorporated is a sales and use tax software vendor that provides customers with a license to download and use its software on their machines. Software retains ownership of the software. It has customers in New Jersey and West Virginia. Does Sof
> Rockville Enterprises manufactures woodworking equipment and is incorporated and based in Evansville, Indiana. Its real property is all in Indiana. Rockville employs a large sales force that travels throughout the U.S. Determine whether each of the follo
> What is the difference, if any, between the state of a business’s commercial domicile and its state of incorporation?
> Describe briefly the nexus concept and explain its importance to state and local taxation.
> Compare and contrast the relative importance of judicial law to state and local and federal tax law.
> Most states have increased the weight of the sales factor for the apportionment of business income. What are some possible reasons?
> Contrast the treatment of government sales and dock sales for the sales apportionment factor.
> Root Beer, Inc. (RBI) is incorporated and headquartered in Seattle, Washington. RBI runs an Internet business, makerootbeer.com, and sells bottling equipment and other supplies for making homemade root beer. It also has an Oregon warehouse from which it
> Compare and contrast the ways a multistate business divides business and non-business income among states.
> Compare and contrast the reasons why book/tax and federal/state adjustments are necessary for interest income.
> Explain the rationale for the factors (functional integration, centralization of management, and economies of scale) that determine whether two or more businesses form a unitary group under the Mobil decision.
> Calculate Anaheim Corporation’s excess net passive income tax in each of the following alternative scenarios. a. Passive investment income, $100,000; expenses associated with passive investment income, $40,000; gross receipts, $120,000; taxable income if
> Eagle Inc., a U.S. corporation intends to create a limitada in Brazil in 2016 to manufacture pitching machines. The company expects the operation to generate losses of US$2,500,000 during its first three years of operations. Eagle would like the losses t
> Explain the difference between separate-return states and unitary-return states.
> States are arguing for economic nexus; provide at least one reason for and one against the validity of economic nexus.
> Describe a situation in which it would be advantageous for a business to establish income tax nexus in a state.
> Climb Higher is a distributor of high-end climbing gear located in Paradise, Washington. Its sales personnel regularly perform the following activities in an effort to maximize sales: • Carry swag (free samples) for distribution to climbing shop employe
> Explain changes in the U.S. economy that have made Public Law 86-272 partially obsolete. Provide an example of a company that Public Law 86-272 works well for and one that it does not work well for.
> Julie wants to create an S corporation called J’s Dance Shoes (JDS). Describe how the items below affect her eligibility for an S election. a. Because Julie wants all her shareholders to have an equal say in the future of JDS, she gives them equal voting
> Do you know what Cloud computing is? Cloud computing is the use of hosted computer facilities through the Internet. Gmail, RIA Checkpoint, and even your iPhone are some applications of cloud computing. a. If HP provides a customized bundle of servers, s
> Happy Hippos (HH) is a manufacturer and retailer of New England crafts headquartered in Camden, Maine. HH provides services has sales, employees, property, and commercial domicile as follows: Happy Hippos sales of goods and services by state are as follo
> Sharon, Inc. is headquartered in State X and owns 100% of Carol, Josey, and Janice Corps, which form a single unitary group. Assume sales operations are within the solicitation bounds of Public Law 86-272. Each of the corporations has operations in the f
> Chandra was the sole shareholder of Pet Emporium that was originally formed as an S corporation. When Pet Emporium terminated its Selection on August 31, 2015, Chandra had a stock basis and an at-risk amount of zero. Chandra also had a suspended loss fro
> Timo is the sole owner of Jazz Inc., an S corporation. On October 31 2016, Timo executed an unsecured demand promissory note of $15,000, and he transferred the note to Jazz (Jazz could require Timo to pay it $15,000 on demand). When Timo transferred the
> Hannah Corporation, a U.S. corporation, owns 100 percent of the stock its two foreign corporations, Red S.A. and Cedar A.G. Red and Cedar derive all of their income from active foreign business operations. Red operates in a low- tax jurisdiction (20 perc
> Wood Corporation was a C corporation in 2015 but elected to be taxed as an S corporation in 2016. At the end of 2015, its earnings and profits were $15,500. The following table reports Wood’s (taxable) income for 2016 (its first year as
> Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corp. in the amount of $5,000. Birch Corp. has
> Assume the same facts as in the previous problem, except that at the beginning of year 1 Jessica loaned Bikes-R-Us $3,000. In year 2, Bikes-R-Us reported ordinary income of $12,000. What amount is Jessica allowed to deduct in year 1? What are her stock a
> Jessica is a one-third owner in Bikes-R-Us, an S corporation that experienced a $45,000 loss this year (year 1). If her stock basis is $10,000 at the beginning of the year, how much of this loss clears the hurdle for deductibility (assume at-risk limitat
> Gary Holt LLP provides tax and legal services regarding tax-exempt bond issues of state and local jurisdictions. Gary typically provides the services from his New York offices. However, for large issuances Gary and his staff travel to the state to comple
> Virginia Corporation is a calendar year corporation. At the beginning of 2016, its election to be taxed as an S corporation became effective. Virginia Corp.’s balance sheet at the end of 2015 reflected the following assets (it did not h
> Rivendell Corporation uses the accrual method of accounting and has the following assets as of the end of 2015. Rivendell converted to an S corporation on January 1, 2016. a. What is Rivendell’s net unrealized built-in gain at the time it converted to a
> David placed $80,000 in trust with income to Steve for his life and the remainder to Lil (or her estate). At the time of the gift, given the prevailing interest rate, Steve’s life estate was valued at $65,000 and the remainder at $15,000. What is the amo
> Jack and Liz live in a community property state and their vacation home is community property. This year they transferred the vacation home to an irrevocable trust that provides their son, Tom, a life estate in the home and the remainder to their daughte
> Sly is a widower and wants to make annual gifts of cash to each of his four children and six grandchildren. How much can Sly transfer to his children this year if he makes the maximum gifts eligible for the annual exclusion? What is the amount of the tot
> This year Colleen transferred $100,000 to an irrevocable trust that pays equal shares of income annually to three cousins (or their estates) for the next eight years. At that time, the trust is terminated and the corpus of the trust reverts to Colleen. D
> Paton Corporation, a U.S. corporation, owns 100% of the stock of Tappan Ltd, a British corporation, and 100 percent of the stock of Monroe N.V., a Dutch corporation. Monroe has post-1986 undistributed earnings of €600 and post-1986 foreign income taxes o
> This year Jim created an irrevocable trust to provide for Ted, his 32-year-old nephew, and Ted’s family. Jim transferred $70,000 to the trust and named a bank as the trustee. The trust was directed to pay income to Ted until he reaches age 35, and at tha
> Raquel transferred $100,000 of stock to a trust, with income to be paid to her nephew for 18 years and the remainder to her nephew’s children (or their estates). Raquel named a bank as independent trustee but retained the power to determine how much inco
> In year 2, Julio and Milania each received distributions of $25,000 from Falcons Corporation. a. What amount of ordinary income and separately stated items are allocated to them for year 2 based on the information above? b. Complete Falcons Form 1120S, S
> Kashi Corporation is the U.S. distributor of fencing (sword fighting) equipment imported from Europe. It is incorporated in Virginia and headquartered in Arlington, Virginia; it ships goods to all 50 states. Kashi’s employees attend regional and national
> Harold and Maude are married and live in a common law state. Neither has made any taxable gifts and Maude owns (holds title) all their property. She dies with a taxable estate of $15 million and leaves it all to Harold. He dies several years later, leavi
> Roberta is considering making annual gifts of $14,000 of stock each to each of her four children. She expects to live another five years and to leave a taxable estate worth approximately $8,000,000. She requests you justify the gifts by estimating her es
> Several years ago Doug invested $21,000 in stock. This year he gave his daughter Tina the stock on a day it was valued at $20,000. She promptly sold it for $19,500. Determine the amount of the taxable gift, if any, and calculate the amount of taxable inc
> Angelina gave a parcel of realty to Julie valued at $210,000 (Angelina purchased the property five years ago for $88,000). Compute the amount of the taxable gift on the transfer, if any. Suppose several years later Julie sold the property for $215,000. W
> Jones is seriously ill and has $6 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Assuming any taxable transfer will be
> Brad and Angelina are a wealthy couple who have three children, Fred, Bridget, and Lisa. Two of the three children, Fred and Bridget, are from Brad’s previous marriages. On Christmas this year Brad gave each of the three children a cash gift of $10,000 a
> Roland had a taxable estate of $5.5 million when he died this year. Calculate the amount of estate tax due (if any) under the following alternatives. a. Roland’s prior taxable gifts consist of a taxable gift of $1 million in 2005. b. Roland’s prior taxab
> Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2016, Chapeau has $2,000 of gross income, $1,200 from U.S. sources and $800 from sourc
> Jimmy owns two parcels of real estate, Tara and Sundance. Tara is worth $240,000 and Sundance is worth $360,000. Jimmy plans to bequeath Tara directly to his wife Lois and leave her a life estate in Sundance. What amount of value will be included in Jimm
> Willie purchased a whole-life insurance policy on his brother, Benny. Under the policy, the insurance company will pay the named beneficiary $100,000 upon the death of the insured, Benny. Willie names Tess the beneficiary, and upon Benny’s death, Tess re
> USCo owns 100 percent of the following corporations: Dutch N.V., Germany A.G., Australia PLC, Japan Corporation, and Brazil S.A. During the year, the following transactions took place. Determine whether the above transactions result in subpart F income t
> Many years ago James and Sergio purchased property for $450,000. Although they are listed as equal co-owners, Sergio was able to provide only $200,000 of the purchase price. James treated the additional $25,000 of his contribution to the purchase price a
> Julio and Milania are owners of Falcons Corporation, an S corporation. They each own 50 percent of Falcons Corporation. In year 1, Julio and Milania each received distributions of $15,000 from Falcons Corporation. a. What amount of ordinary income and se
> Hal and Wendy are married, and they own a parcel of realty, Blackacre, as joint tenants with the right of survivorship. Hal owns an additional parcel of realty, Redacre, in his name alone. Suppose Hal should die when Blackacre is worth $800,000 and Redac
> Tom Hruise was an entertainment executive who had a fatal accident on a film set. Tom’s will directed his executor to distribute his cash and stock to his wife, Kaffie, the real estate to his church, The First Church of Methodology, and the remainder of
