Question: In the current year, Paul Chaing (4522

> Night, Inc., a domestic corporation, earned $300,000 from foreign manufacturing activities, on which it paid $90,000 of foreign income taxes. Night’s foreign sales income is taxed at a 50% foreign tax rate. What amount of foreign sales income can Night e

> Skills, Inc., a U.S. corporation, reports current foreign-source income classified in two different FTC income baskets. It earns $50,000 in passive foreign- source income, and it suffers a net loss of $30,000 in the general limitation basket. What is the

> Hart Enterprises, a domestic corporation, owns 100% of OK, Ltd., an Irish corporation. OK’s gross income for the year is $10 million. Determine whether any of the following transactions produce Subpart F gross income for the current year. a. OK earned $

> Discuss the policy reasons for the existence of the Subpart F rules. Give two examples of Subpart F income.

> Orion, Inc., a U.S. corporation, reports foreign-source income and pays foreign taxes for the tax year as follows. Orion’s worldwide taxable income is $600,000, and U.S. taxes before the FTC are $210,000 (assume a 35% rate). What is Ori

> Harold, Inc., a domestic corporation, earned $500,000 from foreign manufacturing activities on which it paid $150,000 of foreign income taxes. Harold’s foreign sales income is taxed at a 45% foreign tax rate. Both sales and manufacturing income are assig

> Crank, Inc., a U.S. corporation, operates a branch sales office in Ghana. During the current year, Crank earned $200,000 in taxable income from U.S. sources and $50,000 in taxable income from sources in Ghana. Crank paid $5,000 in income taxes to Ghana.

> Drake, Inc., a U.S. corporation, operates a branch sales office in Turkey. During the current year, Drake earned $500,000 in taxable income from U.S. sources and $100,000 in taxable income from sources in Turkey. Drake paid $40,000 in income taxes to Tur

> USCo, a domestic corporation, reports worldwide taxable income of $500,000, including a $300,000 dividend from ForCo, a wholly owned foreign corporation. ForCo’s undistributed E & P totals $1 million, and it has paid $200,000 of foreign incom

> ABC, Inc., a domestic corporation, owns 100% of HighTax, a foreign corporation. HighTax has $50 million of undistributed E & P, all of which is attributable to general limitation income, and $30 million of foreign income taxes paid. HighTax distributes a

> Sarah incorporates her small business but does not transfer the machinery and equipment used by the business to the corporation. Instead, the machinery and equipment are leased to the corporation for an annual rent. What tax rea- sons might Sarah have fo

> Mary, a U.S. citizen, is the sole shareholder of CanCo, a Canadian corporation. During its first year of operations, CanCo earns $14 million of foreign-source taxable income, pays $6 million of Canadian income taxes, and distributes a $2 mil- lion divide

> FoldIt, a U.S. business, paid income taxes to Mexico relative to profitable sales of shipping boxes it made in that country. Can it claim a deduction for these taxes in computing U.S. taxable income? A tax credit? Both? Explain.

> Create, Inc., produces inventory in its foreign manufacturing plants for sale in the United States. Its foreign manufacturing assets have a tax book value of $5 million and a fair market value of $15 million. Its assets related to the sales activity have

> Describe the different approaches used by countries to tax the earnings of their citizens and residents generated outside the borders of the country.

> Evaluate this statement: It is unfair that the United States taxes its citizens and residents on their worldwide income.

> Miha Ohua is the CFO of a U.S. company that has operations in Europe and Asia. The company has several manufacturing subsidiaries in low-tax foreign countries where the tax rate averages 6%. These subsidiaries purchase raw materials used in the productio

> Beckett Corporation has nexus with states A and B. Apportionable income for the year totals $800,000. Beckett’s apportionment factors for the year use the following data. Compute Beckett’s B taxable income for the year

> Fillon operates manufacturing facilities in states A and B. Fillon has nexus with both states; apportionment factors are .70 for A and .30 for B. Taxable income for the year totaled $150,000, with a $200,000 A profit and a $50,000 B loss. Calculate taxab

> Castle Corporation conducts business and has nexus in states A, B, and C. All of the states use a three-equal-factors apportionment formula, with the factors evenly weighted. Castle generates $555,000 apportionable income and $75,000 allocable income rel

> Chirp Corporation owns two subsidiaries. Song, located in State A, generated $500,000 taxable income this year. Bird, located in State B, generated a $100,000 loss for the period. a. Determine Song’s taxable income in States A and B, assuming that the s

> In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payments to its sole owner, Sasha. In addition, Azure has interest on municipal bonds of $25,000. Sasha has significant income from other s

> Enders, Inc., a domestic corporation, reports $290,000 total taxable income for the year, consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign investment securities. Overseas tax authorities with- held $24,000 in inco

> Cordero, Inc., is a calendar-year taxpayer and a CFC for the entire tax year. Vance Company, a U.S. corporation, owns 75% of Cordero’s one class of stock for the entire year. Cordero’s Subpart F income for the year is $450,000, and no distributions were

> Determine whether each of the following transactions is a preference (P) is an adjustment (A), or is not applicable (NA) for purposes of the corporate AMT. a. Depletion in excess of basis taken by Giant Oil Company. b. Accelerated depreciatio

> Buford sells an apartment building for $720,000. His adjusted basis is $500,000 for regular income tax purposes and $550,000 for AMT purposes. Calculate Buford’s: a. Gain for regular income tax purposes. b. Gain for AMT purposes. c. AMT adju

> Greiner, Inc., a calendar year S corporation, holds no AEP. During the year, Chad, an individual shareholder, receives a $30,000 cash distribution from Greiner. Prior to the distribution, Chad’s basis in his Greiner stock is $25,000. a. Determine Chad’s

> Calculate the AMT for the following cases in 2015. The individual taxpayer reports regular taxable income of $450,000 and no tax credits. Tentative Minimum Tax Filing Status Case 1 Case 2 Single Married, filing jointly $200,000 $100,000 200,000 100,0

> Included in Alice’s regular taxable income and in her AMT base is a $300,000 capital gain on the sale of stock she owned for three years. Alice is in the 35% tax bracket for regular income tax purposes. In calculating her regular income tax liability, sh

> Peach Corporation (a calendar year company) recorded the following trans- actions. Taxable income ……………………………………………………………………………………………. $5,000,000 Regular tax depreciation on realty in excess of ADS (placed in service in 1991) ………………………………………………………………………

> In each of the following independent situations, determine the tentative mini- mum tax. Assume that the company is not in small corporation status. AMTI (before the Exemption Amount) $150,000 Quincy Corporation Redland Corporation 160,000 Tanzen Cor

> Purple Corporation, a calendar year taxpayer, began operations in 2013. It reported the following amounts for its first four tax years. Calculate Purple’s positive and negative ACE adjustments for each year. Unadjusted AMTI ACE 201

> Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the current year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a long-term capital gain of $15,000 and ma

> Based on the following facts, calculate adjusted current earnings (ACE). Alternative minimum taxable income (AMTI before ACE adjustment) ……………. $5,120,000 Municipal bond interest ……………………………………………………………………………….…630,000 Expenses related to municipal bond

> Maize Corporation (a calendar year corporation) reports the following information for the years listed. Compute the ACE adjustment for each year. 2014 2015 2016 Adjusted current earnings Unadjusted AMTI $5,000,000 $5,000,000 $7,000,000 3,000,000 8,00

> Flicker, Inc., a closely held corporation, acquired a passive activity this year. Gross income from operations of the activity was $160,000. Operating expenses, not including depreciation, were $122,000. Regular income tax depreciation of $49,750 was com

> Pheasant, Inc., is going to be subject to the AMT in 2015. The corporation owns an investment building and is considering disposing of it and investing in other realty. Based on an appraisal of the building’s value, the realized gain would be $85,000. Ed

> Allie, who was an accounting major in college, is the controller of a medium- size construction corporation. She prepares the corporate tax return each year. Due to reporting a home construction contract using the completed contract method, the corporati

> Rust Company is a real estate construction business with average annual gross receipts of $3 million. Rust uses the completed contract method on a particular contract that requires 16 months to complete. The contract is for $500,000, with estimated costs

> In March 2015, Grackle, Inc., acquired used equipment for its business at a cost of $300,000. The equipment is five-year class property for regular income tax purposes and for AMT purposes. Grackle does not claim any available additional first-year depre

> Falcon, Inc., owns a silver mine that it purchased several years ago for $925,000. The adjusted basis at the beginning of the year is $400,000. For the year, Falcon deducts depletion of $700,000 (greater of cost depletion of $290,000 or perce

> Aqua, Inc., a calendar year corporation, has the following gross receipts and taxable income for 2012 through 2015: Aqua’s first year of operations was 2012. a. When is Aqua first exempt from the AMT as a small corporation? b. Is Aqu

> Blue Horizons, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also does some business in the European Union through various branches. During the current year, Blue Horizons has taxable income

> In the current year, Riflebird Company had operating income of $220,000, operating expenses of $175,000, and a long-term capital loss of $10,000. How do Riflebird Company and Roger, the sole owner of Riflebird, report this information on their respective

> Ahmed Zinna (16 Southside Drive, Charlotte, NC 28204), one of your clients, owns two retail establishments in downtown Charlotte and has come to you seeking advice concerning the tax consequences of complying with the Americans with Disabilities Act. He

> Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, it is determined that his research-credit base amount for the year is $32,800. a

> In March 2015, Sparrow Corporation hired three individuals—Austin, Adam, and Angela—all of whom are certified as long-term family assistance recipients. Each of these individuals earned $11,000 during 2015. Only Adam continued to work for Sparrow in 2016

> Green Corporation hires six individuals on January 4, 2015, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2015, and each individual works more than 400 hours during the year. The other thre

> The tax credit for rehabilitation expenditures is available to help offset the costs related to substantially rehabilitating certain buildings. The credit is calculated on the rehabilitation expenditures incurred and not on the acquisition cost of the bu

> In January 2014, Iris Corporation purchased and placed in service a 1933 building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing the facility, Iris Corporation incurred $312,000 of renovation co

> Oak Corporation holds the following general business credit carryovers. If the general business credit generated by activities during 2015 equals $36,000 and the total credit allowed during the current year is $60,000 (based on tax liability), what amou

> Charles has a tentative general business credit of $42,000 for the current year. His net regular tax liability before the general business credit is $107,000, and his tentative minimum tax is $88,000. Compute Charles’s allowable general business credit f

> Jane and Robert Brown are married and have eight children, all of whom are eligible to be claimed as the couple’s dependents. Robert earns $94,000 working as an accountant, and Jane earns $35,000 as a teaching aide. Given their large family, they live in

> Janice is the sole owner of Catbird Company. In the current year, Catbird had operating income of $100,000, a long-term capital gain of $15,000, and a charitable contribution of $5,000. Janice withdrew $70,000 of profit from Catbird. How should Janice re

> Blue is the owner of all of the shares of Blue Bell, an S corporation. Blue is considering receiving a salary of $110,000 from the business. She will pay the 7.65% FICA taxes on the salary, and the S corporation will pay the same amount of FICA tax. If B

> Samuel Reese sold 1,000 shares of his stock in Maroon, Inc., an S corporation. He sold the stock for $15,700 after he had owned it for six years. Samuel had paid $141,250 for the stock, which was issued under § 1244. Samuel is married and separately owns

> Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2015. The company generated a $74,000 NOL in 2014 and another NOL of $43,000 in 2015. Orange stock always is owned by the same four shareholders, each o

> Maple, Inc., is an S corporation with a single shareholder, Bob Maple. Bob believes that his stock basis in the entity is $50,000, but he has lost some of the records to substantiate this amount. Maple reports an ordinary loss for the year of $80,000. Wh

> If the beginning balance in Swan, Inc.’s OAA is $6,700 and the following transactions occur, what is Swan’s ending OAA balance? Depreciation recapture income ………………………………………. $ 21,600 Payroll tax penalty ……………………………………………………………. (4,200) Tax-exempt inter

> Polly has been the sole shareholder of a calendar year S corporation since its inception. Polly’s stock basis is $15,500, and she receives a distribution of $19,000. Corporate-level accounts are as follows. How is Polly taxed on the dis

> Tiger, Inc., a calendar year S corporation, is owned equally by four share- holders: Ann, Becky, Chris, and David. Tiger owns investment land that was purchased for $160,000 four years ago. On September 14, when the land is worth $240,000, it is distribu

> On January 1, Bobby and Alicia own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The company has a $60,000 loss for the year (not a leap year). On the 219th day of the year, Bobby sells his half of the stock to his so

> For each of the following independent statements, indicate whether the trans- action will increase (þ), decrease (), or have no effect (NE) on the basis of a shareholder’s stock in an S corporation. a. Expenses related to tax-exempt income. b. Short-te

> Joey lives in North Carolina, a common law state. He is a shareholder in an S corporation. If he marries a nonresident alien, will the S election terminate? Would your answer change if he lived in Louisiana? Explain.

> In January 2015, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of a client’s bankruptcy, Pelican, Inc., decreased the all

> Isaac and 121 of his close friends want to form an S corporation. Isaac rea- sons that if he and his friends form a partnership, the partnership then can establish an S corporation and act as a single shareholder, thereby avoiding the 100 shareholder rul

> Which of the following can be a shareholder of an S corporation? a. Resident alien. b. Partnership. c. IRA. d. C corporation.

> 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%

> Continue to consider the case of the taxpayer in Problem 42. Is it acceptable to you if the taxpayer purposely shifts its sales force among the states to reduce its tax liabilities? Data from Problem 42: Considering only the aggregate state income tax

> Evaluate the following statement: Foreign persons never are subject to U.S. taxation on U.S.-source investment income so long as they are not engaged in a U.S. trade or business.

> Give a simple answer to Andre’s question: “If I move to the United States, how will the Federal government tax my widget sales and capital gains?” Andre will be living in New York City, where state and local taxes are very high. Ignore the effects of tax

> 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.

> Is a foreign corporation owned equally by 100 unrelated U.S. citizens considered to be a controlled foreign corporation (CFC)? Explain.

> 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

> Food, Inc., a domestic corporation, owns 70% of the stock of Drink, Inc., a foreign corporation. For the current year, Food receives a dividend of $20,000 from Drink. Drink’s E & P (after taxes) and foreign taxes are $6 million and $800,000, respectively

> Dorcas incurs the following research expenditures. In-house wages………………………………. $60,000 In-house supplies ………………………………. 5,000 Paid to ABC, Inc., for research……………. 80,000 a. Determine the amount of qualified research expenditures. b. Assuming that the b

> Fleming, Inc., a domestic corporation, operates in both Canada and the United States. This year, the business generated taxable income of $400,000 from foreign sources and $300,000 from U.S. sources. All of Fleming’s foreign-source income is in the gener

> USCo, a domestic corporation, reports worldwide taxable income of $1.5 mil- lion, including a $400,000 dividend from ForCo, a wholly owned foreign corporation. ForCo’s undistributed E & P totals $16 million, and it has paid $10 million of foreign income

> 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

> Klein, a domestic corporation, receives a $10,000 dividend from ForCo, a wholly owned foreign corporation. The deemed-paid (indirect) foreign tax credit associated with this dividend is $3,000. What is the total gross income included in Klein’s tax retur

> 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.

> 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 de- vice. Willa licenses the rights to use the patent to IrishCo, which uses the patent in its manufacturing facility located in Ireland. What is the source of the $1 million roy

> Chock, a U.S. corporation, purchases inventory for resale from distributors within the United States and resells this inventory at a $1 million profit to customers outside the United States. Title to the goods passes outside the United States. What is th

> 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 Ger

> Janda and Kelsey contributed $1 million each to the JKL LLC in exchange for 45% capital and profits interests in the entity. Lilli will contribute no cash, but has agreed to manage the LLC’s business operations in exchange for an $80,000 annual salary an

> During 2015, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the year. Determine the amount of Lincoln’s work opportunit

> The Sparrow Partnership plans to distribute $200,000 cash to its partners at the end of the year. Marjorie is a 40% partner and would receive $80,000. Her basis in the partnership is only $10,000, however, so she would recognize a $70,000 gain if she rec

> Continue with the facts presented in Problem 30, except that Suz-Anna was formed as an LLC instead of a general partnership. a. How would Suz-Anna’s ending liabilities be treated? b. How would Suzy’s basis and amount at risk be different? Explain. Data

> 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 interest. A

> At the beginning of the tax year, Melodie’s basis in the MIP LLC was $60,000, including Melodie’s $40,000 share of the LLC’s liabilities. At the end of the year, MIP distributed to Melodie cash of $10,000 and inventory (basis of $6,000, fair market value

> In each of the following independent cases in which the partnership owns no hot assets, indicate the following. All of the partners received proportionate distributions. • Whether the partner recognizes gain or loss. • Whether the partnership recognize

> Mona and Denise, mother and daughter, operate a local restaurant as an LLC. The MD LLC earned a profit of $200,000 in the current year. Denise’s equal LLC interest was acquired by gift from Mona. Assume that capital is a material income-producing factor

> Burgundy, Inc., and Violet Gomez 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 Bu

> Four GRRLs Partnership is owned by four unrelated friends. Lacy holds a 40% interest; each of the others owns 20%. Lacy sells investment property to the partnership for its fair market value of $200,000. Her tax basis in the property was $250,000. a. Ho

> The Pelican Partnership was formed on August 1 of the current year and admitted Morlan and Merriman as equal partners on that date. The partners both contributed $300,000 of cash to establish a children’s clothing store in the local mall. The partners s

> The BCD Partnership plans to distribute cash of $20,000 to partner Barb at the end of the tax year. The partnership reported a loss for the year, and Barb’s share of the loss is $10,000. Barb holds a basis of $15,000 in the partnership interest, includin

> Emily spent $135,000 to rehabilitate a building (adjusted basis of $90,000) that originally had been placed in service in 1935. a. What is Emily’s rehabilitation expenditures tax credit? b. What would be your answer if the building was a historic structu

> Assume the same facts as in Problem 21, except that the property contributed by Lee has a fair market value of $27,500 and is subject to a nonrecourse mortgage of $20,000. a. What is Lee’s basis in his partnership interest? b. How much gain must Lee re

> Lee, Brad, and Rick form the LBR Partnership on January 1 of the current year. In return for a 25% interest, Lee transfers property (basis of $15,000, fair market value of $17,500) subject to a nonrecourse liability of $10,000. The liability is assumed b