Question: Herman, who is unmarried and has two

> 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

> Michael buys a piece of property from JFK Partnership for $60,000 that has a $70,000 basis. Michael owns 80% of JFK partnership. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you iden

> Lydia owns 75% of Flower Farms, a partnership. She also owns land that she leases to Flower Farms for $6,000 per month. identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> ADC, Inc., is a corporation that was formerly a three-person partnership. It is in the business of acquiring software and distributing it to accounting firms that need specialized software in their operations. ADC, Inc., is still owned and operated by t

> Tim and his daughter, Mary, own and operate Tamar Corporation. Tim is nearing retirement and would like to transfer ownership of the corporation to Mary but would like to stay on as a paid consultant providing retirement planning for the corporation's o

> In addition to the federal income tax, a corporation is subject to the laws of the state in which it is incorporated, including state income tax. Use the Internet to locate sources of tax law that govern the taxation of corporations for your state. Lis

> A limited liability company is becoming a common business form, with most states having passed legislation allowing this entity form. Use the Internet to find out more information about LLCs. Use several search engines and find at least two articles an

> Ballou Corporation distributes $200,000 in cash to its shareholders during the current year. Accumulated earnings and profits at the beginning of the year are $45,000, and current year earnings and profits are $105,000. Buddy owns 80% of Ballou and has

> Charlene owns a 70% interest in Maupin Mopeds, which is organized as a partnership. She wants to open another business and needs office space for it. She has Maupin distribute a building worth $150,000 to her in lieu of her normal cash distribution. M

> Milena owns a 25% interest in Davis Company, an S corporation. Her basis in the Davis stock is $40,000. Davis reports an operating loss of $200,000 in the current year. Davis owes Milena $25,000 on a loan she made to the company several years ago. Ide

> In problem 89 in Chapter 9 and problem 74 in Chapter 10, the initial basis and the adjusted basis of Emelio and Charita’s assets were determined as of December 31, 2017. During 2018, they have the following transactions related to the assets: a. In June

> Kummell Corporation reports a $200,000 taxable income in the current year. Included in the taxable income calculation are $20,000 in dividends received from less-than-20%-owned corporations, and $30,000 in charitable contributions. Identify the tax issu

> Waldo Corporation has recently retained your accounting firm to prepare its income tax return. Art, the partner in charge of the engagement, has assigned you the job of reviewing last year's return and making recommendations on the preparation of this ye

> Explain how a partner’s basis in a partnership can differ from the partner’s at-risk amount.

> Partners can generally deduct losses from the partnership. What are the three limitations on the deduction of partnership losses?

> Why must a partnership separately state certain items in reporting its income to the partners?

> Why do sole proprietors not include all the items of income and deductions related to their business in the calculation of the business’s operating income?

> Explain the advantages to taxpayers of hiring their children to work in their businesses.

> Compare the tax treatment of a nonliquidating distribution of cash or property and a liquidating distribution of cash or property for each of the following entities a. Sole proprietorship b. Partnership c. Corporation d. S corporation

> What are the similarities and differences in the income tax treatment of a partnership and an S corporation?

> What is the purpose of the dividends-received deduction?

> You are a CPA who works for a local accounting firm. While having lunch at Willie's Diner last Thursday, you overheard Beth Murray describe how Bart (her spouse) was able to get a $2,000 business loss, free car maintenance for 2 years, and $4,000 cash t

> How does the recapture of depreciation on a Section 1250 property for a corporation differ from that of other entities?

> Are passive losses treated the same for all types of entities?

> Explain the general difference in the treatment of each of the following items for a corporation: a. Capital gains and losses b. Passive losses c. Charitable contributions d. Dividends received

> Explain the general rationale for adjusting the basis of partners and S corporation shareholders.

> Under what circumstances can a partner transact with a partnership at arm’s length?

> Astrid, who is single, is a sales representative for several sporting goods manufacturers. She operates her enterprise as a sole proprietorship. Astrid has 1 employee, Melvin, who serves as office manager for the business. Gross revenues are $250,000

> Bert, founded Sambert Corporation a little over a year ago. He believes that his company, which sells specialized computer toys, will be very profitable over the next several years, as evidenced by its $400,000 of earnings in the current year. Although

> Tory, Becky, Hal, and Jere form TBHJ Partnership as equal owners. TBHJ Partnership rents heavy tools and equipment. Becky and Hal are married to each other while Tory and Jere are brothers but are not related to Becky or Hal. Because Becky and Hal have

> Tony and Susan are starting a retail business selling formal wear for men and women. They estimate profits and losses for the next five years to be: ($20,000), ($10,000), ($5,000), $10,000, and $50,000 respectively. Susan will work full time in the st

> Estel and Raymond own the GoalLine Partnership. Estel owns 70% of the business. She provided the capital for it and consults with Raymond on overall business strategy. Raymond is responsible for the daily operation of the business and owns the remaini

> What effect does the assumption of a seller's debt have on the amount realized from the disposition of a property?

> Antonio and Michaela are equal partners in A&M Booking Services. Antonio manages the business and receives $40,000 per year for his management services. He and Michaela each withdraw $30,000 in cash during the current year. A&M's ordinary income is $8

> In January of the current year, Josh purchases all the stock of Ballpark Corporation for $100,000. Ballpark's taxable income for the current year is $200,000, and it pays $61,250 in income tax. None of the earnings is distributed as dividends. Josh be

> Return to the facts of problem 40. Assume that late in the year, Drew needs extra cash to pay off gambling debts and has the corporation declare a $25,000 dividend to provide the cash. What is the effect of the dividend payment on the total income tax

> Drew is the sole owner of Morris, Inc., a corporation. Morris’s net income for the current year is $150,000 before considering Drew’s $85,000 salary. Assume Drew is single and has income from other sources that is $30,000 more than his allowable deduct

> Kelly, Gwen, and Tuoi incorporated their accounting business and own all its outstanding stock. During the current year, the corporation's taxable income is $300,000 after deducting salaries of $60,000 for each shareholder employee. Assume that all thr

> Return to the facts of problem 37. Upon giving your tax calculation results to Polly, you learn that CopyEdit's primary business is the provision of copyediting services to corporate clients. Polly and Kevin perform all the work. Write a letter to Pol

> Polly owns CopyEdit, a sole proprietorship. The net income from CopyEdit is consistently around $200,000. Polly is considering making Kevin, one of her employees, an owner of the business. He would continue to be paid his $40,000 salary and own a 25%

> Return to the facts of problem 33. Compare the total income tax liability of Herman’s incorporating his business versus operating it as a sole proprietorship. Assume that he is paid a $60,000 salary and has income from other sources that is $14,000 more

> Rollo and Andrea are equal owners of Gosney Company. During the current year, Gosney's taxable income before considering salaries paid to Andrea and Rollo is $140,000. Rollo is single, his salary is $30,000, and he has net taxable income of $20,000 fro

> Lydia and Paulo agree to become equal owners in a pizza delivery business. Lydia will manage the delivery side of the business, and Paulo will be in charge of kitchen operations. They will borrow most of the money they need to get the business started.

> In a transaction in which the seller of property agrees to take other property from the buyer as part of the sales price, why is the buyer's adjusted basis unimportant in determining the amount realized by the seller?

> Kim and Brendan, who are longtime friends, have decided to buy a golf equipment store and go into business together as equal partners. Kim reports his income by calendar year, and Brendan uses a fiscal year that ends September 30. One attraction of ownin

> Which accounting method must each of the following taxpayers use? a. Fax, Inc., is an S corporation wholly owned by Helena. She uses a calendar year to report her income. b. Assume the same facts as in part a, expect that Fax, Inc., is a corporation. I

> Determine the tax year(s) each of the following S corporations must use. Explain. a. Will, Dan, and Tom are equal owners of Rheen Corporation, and each has a different fiscal year. Will has a fiscal year that ends April 30, Dan's ends May 31, and Tom's e

> What tax year must each of the following taxpayers use? Explain. a. Brayanth works for Gippsland Corporation. His income for the year includes salary, interest, dividend income, and a long-term capital gain. Although he itemizes his deductions, he keep

> Shree is considering opening a travel agency. She spends $47,000 investigating the profitability of the business and potential locations and $5,000 for legal and other fees incident to the organization of the business. Although the costs are high, Shre

> Big C Corporation, a calendar year corporation, is formed during the current year and begins business operations on September 1. Big C pays $8,000 to attorneys, accountants, and state regulatory agencies to organize the corporation. Big C pays 6,000 in c

> Myron, Al, and Jandra make the following transfers from their sole proprietorships, to a newly formed business, each receiving a 1/3 ownership interest. In addition, the business borrows $60,000 from a local bank for working capital. The loan is a nonr

> Return to the facts of problem 53. Assume that the property Toby contributes is encumbered by a $20,000 mortgage that is assumed by Landscape Developers. How does this affect the tax results for each of the entity forms? Data from Problem 53: Toby exc

> Toby exchanges property worth $80,000 (basis of $55,000) for a 20% interest in Landscape Developers. What are the tax effects of the exchange if Landscape is organized as a. A partnership b. A corporation c. An S corporation

> Are brokerage commissions paid on the sale of stock a current period expense? Explain.

> Emmon and Darcy are equal owners of Golf Instruction Academy (GIF). The business has been profitable, and they would like to expand their operations. Tiger owns Power Golf. Emmon and Darcy will make Tiger an equal owner of GIF (i.e., each will have a

> John and Katerina form JK Enterprises in the current year. John contributes $200,000 in cash for a 40% interest. Katerina contributes real estate valued at $480,000 and encumbered by a mortgage of $180,000 that is assumed by the business. Katerina's ba

> Miko and Mona form M&M Beverages in the current year. Miko contributes $20,000 in cash and delivery trucks worth $70,000 for a 30% interest. Miko's basis in the delivery trucks is $80,000. Mona contributes $30,000 and land worth $130,000 (basis = $10

> Billy Bob is employed by the Pony Ranch Corporation and owns 1% of the corporation’s stock. The corporation provides excludable meals and lodging for Billy Bob at a cost of $12,000 annually. a. Can the Pony Ranch Corporation deduct the costs of the meal

> Natalie operates her bookkeeping service as a corporation. She is the sole shareholder and is an employee functioning as the chief operating officer. The corporation employs several other individuals and offers them good fringe benefits: group term lif

> Colleen, Rosemary and Suzanne are owners of a software development firm. Colleen owns 45% of the business, Rosemary 30%, and Suzanne 25%. The net operating income from the business is $220,000. Assume Suzanne is paid a salary of $45,000. For each of

> Enterprise Business Systems, pays the $5,000 health and accident insurance policy of its owner Gena. The business's net operating income for the year is $60,000 before considering Gena's benefit. Determine the business's net income for the year and the

> Artis owns 40% of the Rhode Island Chile Parlor (RICP). During the current year, Rhode Island gives Artis fringe benefits worth $4,000 in addition to his $30,000 salary. RICP’s net taxable income before considering the payments to Artis is $160,000. A

> Rolf owns 20% of Chaminade Corporation. During the current year, Chaminade reports operating income of $240,000 and pays $60,000 in cash dividends. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each

> Raquel is an employee of Jones Company and owns a 30% interest in the company. Her salary is $44,000. She also receives a $10,000 cash distribution from Jones. During the current year, Jones's operating income is $130,000. identify the tax issue(s) p

> In determining the amount of a realized gain or loss to be recognized in the current year, certain types of gains and losses are deferred while others are disallowed. What is the difference between deferring a gain or loss realized in the current period

> A former clergyman with a degree in counseling decides to go into business for himself. He contracts with four large corporations to provide alcohol, drug, and psychological analysis for their employees. The contracts require him to be available on a

> Shirley and Roseann form Rosa Corporation with each contributing assets and cash in exchange for all of the corporation's stock. Shirley and Roseann each own 50% of the stock immediately after the exchange. Shortly thereafter, Shirley sells all her sto

> Ruiz and his two brothers founded a social club called the Last Snake Inn in 1996. They want to take advantage of a new state law that lets them serve beer, liquor, and wine to their patrons on Sundays. To do so, the club must obtain a special liquor li

> Recently, there has been a lot of discussion about what is commonly referred to as “corporate tax shelters” as a means of corporations' avoiding paying income tax. Discussions in Congress may lead to legislation aimed at closing corporate “loopholes” in

> The IRS has established procedures to simplify taxpayers' choice of entity for tax purposes. The procedures are referred to as the "check-the-box" regulations. Use the Internet to find articles or discussions about these rules and how they are applied

> Ariel and Mia agree to combine their business assets to form the A&M Corporation. Ariel’s business assets are worth $135,000 and have a basis of $80,000. Mia’s business assets are worth $200,000, have a basis of $165,000, and are encumbered by a $90,00

> Ben and Pete form a corporation to run a real estate investment management company. Ben contributes cash of $40,000 to the corporation in exchange for 50% of its stock. Pete obtains his 50% ownership interest by contributing land with a fair market val

> Rikki and Rhonda are equal owners of LilMark Corporation. To expand their operations, Marsha will contribute a building worth $80,000 for which she will receive a one-third ownership interest in the corporation. Marsha’s basis in the building is $30,00

> Robbie is the vice president of Mailer Corporation. He owns 40% of Mailer, which is organized as an S corporation. Robbie's salary is $75,000, and he receives group-term life insurance and health and accident insurance that cost $3,000. Mailer's opera

> Miriam is a self-employed computer consultant. Her business nets $120,000 annually, and she takes $85,000 of the earnings in salary. Miriam is considering incorporating her computer consulting business. Identify the tax issue(s) posed by the facts pres

> What is unrecaptured Section 1250 gain, and how is the gain taxed?

> Assume that you are a CPA and a tax specialist. Your clients include Ale and Grains, Inc., an S corporation, and Gustav and Heidi Lager, a married couple who are shareholders and the operators of Ale and Grains. The S corporation has expanded to include

> Which entity form(s) recognize owners as employees of the business?

> What are the tax differences between a corporation and a personal service corporation?

> What are the tax consequences of receiving an ownership interest in an entity in exchange for services rendered to the entity?

> What is the tax treatment for a guaranteed payment?

> Compare the requirements for a tax-free exchange of property for an ownership interest in a partnership with the requirements for a corporation.

> What is the rationale for not taxing transfers of property in exchange for an ownership interest?

> What is the tax treatment of health insurance premiums paid on behalf of: a. A sole proprietor b. A partner c. An owner-employee of a corporation d. An owner-employee of an S corporation

> Is all compensation paid to an employee deductible? Discuss the circumstances in which employee compensation cannot be deducted.

> Compare the tax treatment of fringe benefits provided to an owner of a corporation with the treatment of fringe benefits provided to an owner of a. A sole proprietorship b. A partnership c. An S corporation

> Some tax theorists have noted that in most cases, a sale of a depreciable asset will not be accorded capital gain treatment. What would prompt tax theorists to make this statement?

> Barney is a farmer who has the following transactions during 2017: a. A barn that had cost $36,000 in 2009 with an adjusted basis of $16,000 is destroyed by a tornado. Barney's insurance pays him $26,000 for the casualty. b. Barney's prize bull, for whi

> Why is it important for an owner to also be classified as an employee of the business for tax purposes?

> Which entity(ies) is/are subject to double taxation?

> Armand is an owner of Content Company. During the current year, he receives a $15,000 cash distribution from Content. What is the tax effect of the receipt of the $15,000 if Content is organized as: a. A partnership b. A limited liability company c. A

> Compare the incidence of taxation for each of the following entities: a. Sole proprietorship b. Partnership c. Corporation d. S corporation

> How is a limited liability partnership different from a partnership?

> How is a limited liability company different from a corporation?

> What are the requirements to qualify for the S corporation election?