EndLand Company reports the following results for the current year: Gross profit from sales………………………………………………………………$350,000 Dividends received (less than 20% ownership)………………………………40,000 Long-term capital loss………………………………………………………………….60,000 Salaries paid to employees…………………………………………………………….70,000 Salaries paid to owners………………………………………………………………..130,000 Investment expenses…………………………………………………………………….10,000 Depreciation (including $10,000 expensed under Section 179)………..60,000 Charitable contributions…………………………………………………………………30,000 a. Assume that EndLand is a partnership owned by Kira (60%) and Justin (40%). Kira receives a salary of $70,000, and Justin receives a salary of $60,000. The salaries are not guaranteed payments. Determine the tax treatment of EndLand's operating results and the effect of the results on Kira and Justin. b. Assume the same facts as in part a, except that EndLand is a corporation. Determine the tax treatment of EndLand’s operating results and the effect of the results on Kira and Justin. c. Assume the same facts as in part b, except that EndLand is an S corporation. Determine the tax treatment of EndLand's operating results and the effect of the results on Kira and Justin.
> Discuss the penalty provisions associated with Roth IRAs.
> Discuss the penalty provisions associated with qualified pension plans, Keoghs, and IRAs.
> Generally, at what age can pension plan distributions begin? When must they begin? Explain any exceptions to these general rules.
> How is the required minimum distribution (RMD) from a pension plan determined?
> Compare the different funding options available to an employer under a SIMPLE-IRA plan and a SIMPLE-401(k) plan. Discuss how these funding options affect the amount the employee and employer can contribute to the plan.
> What requirements must a taxpayer meet to establish a simplified employee pension plan?
> How does a simplified employee pension plan differ from a Keogh plan? From a qualified pension plan?
> Are all taxpayers (including spouses of active participants) allowed a deduction for a contribution to an individual retirement account? Explain.
> How does being an owner-partner affect the amount that can be contributed to a Keogh plan?
> What is meant by the term owner-partner?
> Marino inherits antique pottery from the estate of his grandmother on March 10, 2017. He immediately sells the pottery for $15,000 to a collector who had made the offer to the executor of the estate several weeks before. The estate valuation of the pot
> How does a Keogh plan differ from other qualified pension plans?
> What is the maximum benefit that can be paid to an individual under a defined benefit plan?
> What is the maximum amount that can be contributed to a defined contribution pension plan?
> Explain the difference between a defined benefit plan and a defined contribution plan.
> Are all entities allowed to establish the same type of qualified pension plan?
> What requirements must be met for a pension plan to be treated as a qualified pension plan?
> What are the tax advantages of using a qualified pension plan instead of a nonqualified pension plan?
> What is the difference between a contributory and a noncontributory pension plan?
> Why is the sale of property by a foreign corporation not subject to the withholding tax on nonbusiness income?
> Explain how foreign corporations conducting business in the United States are taxed on their business and nonbusiness income.
> Luke trades his baseball card collection for an automobile. The automobile is worth $11,000, and Luke assumes the $3,000 loan on the car. Luke has $3,500 invested in his baseball card collection. Identify the tax issue(s) posed by the facts presented.
> What is the purpose of the transfer pricing rules?
> Why is the transfer of appreciated property to a controlled foreign corporation subject to tax?
> What is the purpose of the foreign tax credit?
> What is Subpart F income and how is it taxed?
> Discuss how a controlled foreign corporation is taxed.
> Why does the United States establish a tax treaty with a foreign country?
> Compare and contrast how the United States taxes a U.S. citizen, a nonresident alien, a domestic corporation and a foreign corporation.
> What is the purpose of the AMT credit against the regular tax?
> What is the AMT exemption amount? Is it available to all taxpayers?
> Why can AMT adjustments be negative?
> Jeremiah owns farm land that he paid $20,000 for in 2005. In 2016, he planted a winter wheat crop on the land, incurring $35,000 of expenses. Jeremiah deducted the $20,000 of planting expenses that he paid in 2016. He pays the remaining $15,000 of exp
> What is the basic difference between an AMT adjustment and a preference?
> What is the tax base for the alternative minimum tax? Explain the general computation of the base.
> What is the purpose of the alternative minimum tax?
> What is the purpose of the general business tax credit?
> What restrictions are placed on the rehabilitation tax credit?
> What types of expenditures qualify for the rehabilitation tax credit?
> What is the purpose of the research and experimental tax credit?
> Harry and Matilda are married and have the following tax return data for 2017: Do Harry and Matilda owe any income tax for 2017? Explain why they might owe tax in 2017 and discuss the items on their tax return that could cause them to pay income tax in
> Lynn and Alicia are equal partners in a local bookstore. They have operated the bookstore for two years but have reported only a small profit. This year they anticipate that the bookstore will generate a large enough profit so that each will be able to
> Alex and Jeff have differing views on the current tax system. Alex believes that any tax system that has two tax structures, a regular tax and an alternative minimum tax, is inefficient and inequitable. In fact, the system violates all canons of taxatio
> On April 3, 2016, Arlene sells land that she holds as an investment to a construction company. The deed conveying the land to the construction company contains a covenant restricting construction on the land to single-family residences. The market for
> For a number of years, Nina was a mechanical engineer for a chemical company. She always enjoyed working around her home in her spare time, doing necessary repairs and maintenance. However, she was always frustrated by the multitude of tools she had to
> John and Joanne have 2 children, Joe, 16, and Jamie, 4. John is self-employed, and Joanne works as a swimming coach for Local University. John's business is manufacturing Jaugernauts. Through the years, JoJo's Jaugernauts has been fairly successful, pro
> Binh has a 50% interest in the Lamonica Partnership with a basis of $10,000 at the end of the year before accounting for his share of the current year's losses. The partnership suffers ordinary losses of $60,000. Assume that Binh is a material participa
> Fawn contributes undeveloped land with a basis of $15,000 and a fair market value of $90,000 to the Deer Partnership for a 25% interest in the partnership. What is Fawn's share of the partnership's operating income or loss, and how does the share affect
> Return to the facts of problem 18. Determine the total tax liability for EndLand, Kira, and Justin for parts a, b, and c. Assume that Kira has net taxable income from other sources of $50,000, which includes a $30,000 long-term capital gain. Justin’s
> Assume that Wrigley Juice is an S corporation owned equally by Henry, Iris, and Jasmine. Prepare a memo explaining the effect of Wrigley’s results on Henry’s, Iris’s, and Jasmine’s tax returns Data for Problem 17: Wrigley Juice has the following income
> Assume that Wrigley Juice is a corporation owned by Cora. Explain the effect of Wrigley’s results on Cora’s tax return. Wrigley Juice has the following income, expense, and loss items for the current year. Sales………………………………………………………………$850,000 Tax-exem
> Assume that Wrigley Juice is a partnership owned equally by Vinnie and Chandra. Explain the effect of Wrigley's results on Vinnie's and Chandra's tax returns. Wrigley Juice has the following income, expense, and loss items for the current year: Sales……
> Assume that Wrigley Juice is owned by Calvin as a sole proprietorship. Explain the effect of Wrigley’s results on Calvin’s tax return. Data for Problem 14: Wrigley Juice has the following income, expense, and loss items for the current year: Sales…………
> The Internal Revenue Service provides various types of help to taxpayers on its World Wide Web site (http://www.irs.gov/). Its publication series explains the tax treatment of many different transactions and situations. Find the publication(s) that disc
> Michelle owns all the shares of Lockett Corporation which operates as an S corporation. Her basis in the stock is $41,000. What are the tax consequences for Michelle and Lockett Corporation if a. Michelle receives a liquidating cash distribution of $24
> Marco owns all the shares of Craig Corporation which operates as an S corporation. Its basis in the stock is $47,000. What are the tax consequences for Marco and the Craig Corporation if a. Marco receives a nonliquidating cash distribution of $18,000 f
> In the current year, Jose receives a liquidating property distribution from Valenzuela Corporation. The basis of the property distributed is $25,000. What is the tax effect of the distribution for Valenzuela and for Jose if a. The property distributed
> In the current year, Simon receives a liquidating cash distribution of $32,000 from Torborg Corporation. What is the tax effect of the distribution for Torborg and for Simon if: a. Simon has a basis in his stock of $42,000? b. Simon has a basis in his s
> In the current year, Penelope receives a nonliquidating distribution of land from the Royal Corporation. The corporation has earnings and profits of $300,000. What is the tax effect of the distribution for Royal and for Penelope if a. The land has a fa
> During the current year, Snowden Corporation distributes $600,000 in cash ($2 per share) to its shareholders. Yong owns 300 shares of Snowden stock with a basis of $9,000. What are the tax consequences for Yong if Snowden’s current and accumulated earn
> Toy Corporation distributes $175,000 in cash ($1.75 per share) when its current and accumulated earnings and profits are $40,000. What is the effect of the distribution for Bernice, who owns 500 shares of Toy stock for which she paid $8,000? Write a le
> Dance Corporation distributes $150,000 in cash to its shareholders during the current year. Accumulated earnings and profits are $25,000 at the beginning of the year. Current earnings and profits are $75,000. Jack, the sole shareholder of Dance Corpora
> Machela, a single individual, owns all the stock in the Gordon Corporation, which reports taxable income of $55,000. The corporation distributes the $55,000 in earnings as a dividend. Machela also receives a salary from the company of $67,000. She has
> The Hartford Group is a partnership owned and operated by June and Joyce. June owns a 60% interest and her basis in the partnership is $33,000. Joyce owns a 40% interest, and her basis is $18,000. At the end of the year, both June and Joyce decide to
> As discussed in this chapter, planning for capital gains and losses is an important aspect of tax practice. Use the Internet to find information that provides year end tax planning opportunities. Trace the process you used to find the information (searc
> The Boyle Brothers own and operate a microbrewery. The partnership has two equal partners, Ed and John. At the close of the current year John's basis in the partnership is $42,000, and Ed's basis is $31,000. What are the tax and basis effects if, at y
> Maurice, Lawrence and Kerwin own and operate a chain of sandwich shops as a partnership. Maurice owns 40% and his basis in the partnership is $80,000. Lawrence, a 35% owner, has a basis of $50,000 and Kerwin who owns 25% has a basis in the partnership o
> Myrna operates a plumbing business as a sole proprietorship. During the year she sells the business to Tonya for $175,000. The assets sold and the allocation of the purchase price are as follows: Myrna acquired the building 10 years ago for $70,000.
> Charger, Inc., has the following items for the current year: Net operating income ………………………………………….$130,000 Dividend income (50% owned corporation) …………….40,000 Charitable cash contributions………………………………….20,000 Net operating loss carryover …………………………………
> The Viking Corporation has the following items of income for 2017: Operating income………………………………………………………$350,000 Dividend income (12%-owned corporations)…………………..15,000 Long term capital gains…………………………………………………9,000 Short term capital gains………………………………
> Tarhari Enterprises, Inc., donates $70,000 worth of computer equipment and related software to Northwest Gifford High School. The property's basis is $30,000. How much may Tarhari deduct for the charitable contribution of the computer equipment and rel
> Mel's Super Groceries, Inc., donates $70,000 worth of canned food with a basis of $50,000 to St. Rebecca's Homeless Shelter, a qualified charitable organization. How much may Mel's deduct for the charitable contribution of the canned food?
> The New Tech Corporation contributes some of its inventory of scientific equipment to the computer department of Great University during the current year. At the date of the contribution, the equipment has a fair market value of $38,000. New Tech's basis
> Fairplay Corporation has gross income of $150,000 and taxable income of $50,000. The company includes no special deductions in the calculation of its taxable income. While reviewing the tax return, Fairplay's accountant finds $20,000 in charitable contri
> The Baker Corporation has the following entries on its books for the current tax year: Net income from operations…………………………………………………………$120,000 Dividends received (70% rules)……………………………………………………….14,000 Charitable contributions made in current year……………
> In 2016, Nuts & Seeds Inc., purchased a new “high-tech” shelling machine from Soft-Core Corporation. Nuts & Seeds paid $1,000 in cash and gave Soft-Core a $29,000 note. The note is non-recourse and Soft-Core’s only recourse in the event of default by N
> Christoffe sells 1,000 shares of HoTech Corporation preferred stock for $37 per share on August 3 of the current year. Sales commissions total $300. The stock's price has been falling since after HoTech's management was sued for patent infringement fou
> Assume the same facts as in problem 35, except that Lacy is an S corporation equally owned by Jorge and Gloria. How should Lacy report the gains on the sale of the equipment and the building? Data from Problem 35: Lacy Corporation sells equipment and a
> Lacy Corporation sells equipment and a building during the current year. The equipment, which cost $14,000 in 2014, is sold for $9,000. The equipment was expensed using the Section 179 election in 2014. The building, purchased in 2009 for $130,000, is
> Lulu Enterprises sells a building with an adjusted basis of $40,000 for $85,000. Lulu paid $60,000 for the building five years ago. What is the treatment of the gain on the sale of the building if a. Lulu is a sole proprietorship owned by Horace b. Lul
> Elvira owns 100% of the stock of Midnite Corporation, a manufacturer of galobnotites. During the current year, Midnite has operating income of $50,000, dividend income of $16,000 from investments in other corporations, and losses from investments in limi
> Adele owns 60% of Trouble, Inc., a corporation. During the current annual accounting period, Trouble has an operating income of $19,000, dividend income from investments in stock of other corporations of $2,800, interest income from First National of $2
> The Bat Ball Corporation incurs a net loss from operations of $62,000 for the current year. Bat Ball receives $175,000 in cash dividends from 30% owned domestic corporations. What is the dividends received deduction and the actual taxable income for the
> The John Corporation suffers a $22,000 net loss from operations for the current year but receives $150,000 in dividend income from corporations in which it owns 50% of the stock. What is the dividends received deduction and the corporation's actual taxab
> The Boo Ball Corporation receives dividend income of $200,000 from Flew Ball, a domestic corporation. Boo Ball owns 70% of Flew Ball. Boo Ball's net income from operations is $50,000. What is Boo Ball's dividends received deduction?
> Natrone pays $35,000 for stock in an S corporation and receives shares equal to a 20% interest in the corporation in the current year. At the same time he pays $35,000 for a 20% interest in a general partnership. Both entities incur mortgage debt of $60,
> Louis is the president and 40% owner of Adams Company. His basis in Adams at the beginning of the year is $8,000. Adams suffers a net operating loss of $15,000 during the current year. Louis receives a $5,000 cash distribution from Adams during the ye
> Tawana purchased real property in 2015 at a cost of $200,000. In 2017, she is experiencing cash-flow problems and sells the property for $220,000. The adjusted basis of the property is $185,000. Identify the tax issue(s) posed by the facts presented.
> Assume the same facts as in problem 25, except that Lanny sells the land to the partnership for $60,000. He held the land for investment. Chasteen is a real estate company. How would your answers to parts a and b change? Data from Problem 25: Lanny i
> Lanny is an owner of the Chasteen Partnership. He sells land to the partnership for $40,000 for which he had paid $52,000. Discuss the treatment of the sale under the following assumptions: a. Lanny owns a 30% interest in the partnership. b. Lanny owns
> Assume the same facts as in problem 23, except that the $45,000 debt is a loan that AnnaBell made to Purity. How would your answers to parts a and c change? Assume that the beginning basis numbers do not reflect the debt to AnnaBell. Data from Problem
> AnnaBell and Eva own and manage Purity Forms Development. AnnaBell’s and Eva’s bases in Purity at the beginning of the year are $18,000 and $24,000, respectively. During the current year, Purity suffers a $90,000 net operating loss. Purity’s only debt
> Return to the facts of problem 21. How would your answers change if Binh is not a material participant in the Lamonica Partnership? Assume that Binh has no other passive income in either year. Write a memo to Binh explaining what he has to do to achi
> Assume the same facts as in problem 63, except that LMC, Inc., is an electing S corporation. Data from Problem 63: LMC, Inc., is equally owned by Larry, Maurice, and Charles. The owners are sports agents. LMC's income consists solely of fees from the o
> LMC, Inc., is equally owned by Larry, Maurice, and Charles. The owners are sports agents. LMC's income consists solely of fees from the owners' clients. During the current year, LMC's net income from operations is $380,000, and it receives $20,000 in i
> Myrtle Coast Corporation has a $35,000 operating loss during the current year. Not included in the loss is a $40,000 dividend it received from a corporation in which it owns a 15% interest. Identify the tax issue(s) posed by the facts presented. Determ
> Ramrod, Inc., sells a warehouse for $350,000. It purchased the warehouse 10 years ago for $250,000 and had taken $75,000 in depreciation on the building to the date of sale. Identify the tax issue(s) posed by the facts presented. Determine the possible
> Powell owns a 20% interest in Cooke Partnership. At the beginning of 2016, Powell's basis is $22,000. Cooke reports a $90,000 operating loss in 2016, and Powell withdraws $10,000 from the partnership. Cooke's 2017 operating income is $70,000, and Powe
> Harry sells the automobile he has used in his job as a salesman for $2,000. It cost $15,000 four years earlier. Harry used the automobile 70% of the time in his job and 30% of the time for personal purposes. At the date of sale, Harry had taken $10,000
> Irene contributes land to Micro Development Partnership for a 30% interest. The land's basis is $20,000, and it has a fair market value of $80,000. Micro reports a net operating loss of $100,000 for the year. Irene devotes at least 12 hours a week to
