Question: On November 10 of year 1 Javier

> Assuming adequate amounts of corporate E&P, what is the formula for determining the amount of a noncash distribution a shareholder must include in gross income?

> Seven years ago, Halle (currently age 41) contributed $4,000 to a Roth IRA account. The current value of the Roth IRA is $9,000. In the current, year Halle withdraws $8,000 of the account balance to use as a down payment on her first home. Assuming Halle

> Paris participates in her employer’s nonqualified deferred compensation plan. For 2018, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and her marginal income tax rate is 32 percent, how much does de

> Euro Corporation, a U.S. corporation, operates through a branch in Germany. During 2018 the branch reported taxable income of $1,000,000 and paid German income taxes of $300,000. In addition, Euro received $50,000 of dividends from its 5% investment in t

> Marissa participates in her employer’s nonqualified deferred compensation plan. For 2018, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and her marginal income tax rate is 32 percent, how much tax d

> Longhaul Real Estate exchanged a parcel of land it held for sale in Bryan, Texas for a warehouse in College Station, Texas. Will the exchange qualify for like-kind treatment?

> Emily purchased a building to store inventory for her business. The purchase price was $760,000. Emily also paid legal fees of $300 to acquire the building. In March, Emily incurred $2,000 to repair minor leaks in the roof (from storm damage earlier in t

> Franco converted a building from personal to business use in May 2016 when the fair market value was $55,000. He purchased the building in July 2013 for $80,000. On December 15 of this year, Franco sells the building for $40,000. On the date of the sale,

> Are real property taxes subject to any deduction limitations? Explain.

> Can C corporations use the cash method of accounting? Explain.

> On January 1, year 1, Tyra works for Hatch Corporation. New employees must choose immediately between receiving seven NQOs (each NQO provides the right to purchase for $5 per share 10 shares of Hatch stock) or 50 restricted shares. Hatch’s stock price is

> LNS corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of tax-exempt interest income. NS reports $1,345,000 in ordinary and necessary business expenses. What is LNS corporation’s taxable income for the year?

> On January 1, year 1, Jessica received 10,000 shares of restricted stock from her employer, Rocket Corporation. On that date, the stock price was $10 per share. On receiving the restricted stock, Jessica made the 83(b) election. Jessica’s restricted shar

> On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. On receiving the restricted stock, Dave made the §3(b) election. Dave’s restricted shares will vest a

> On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end

> Harmer Inc. is now a successful company. In the early days (before it became profitable), it issued incentive stock options (ISOs) to its employees. Now Harmer is trying to decide whether to issue nonqualified options (NQOs) or ISOs to its employees. Ini

> Antonio received 40 ISOs at the time he started working for Zorro Corporation six years ago (each option gives him the right to purchase 20 shares of Zorro stock for $3 per share). Zorro’s share price was $3 per share at the time. Now that Zorro’s share

> Mark received 10 ISOs at the time he started working for Hendricks Corporation five years ago when Hendricks’s price was $5 per share (each option gives him the right to purchase 10 shares of Hendricks Corporation stock for $5 per share). Now that Hendri

> Haven received 200 NQOs (each option gives him the right to purchase 20 shares of Barlow Corporation stock for $7 per share) at the time he started working for Barlow Corporation three years ago when its stock price was $7 per share. Now that Barlow’s sh

> Yost received 300 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $15 per share) at the time he started working for Cutter Corporation three years ago. Cutter’s stock price was $15 per share. Yost exercises al

> Discuss how the property limitation restricts large businesses from taking the §179 expense.

> 1. Kathleen, age 56, works for MH, Inc. in Dallas, TX. Kathleen contributes to a Roth 401(k) and MH contributes to a traditional 401(k) on her behalf. Kathleen has contributed $30,000 to her Roth 401(k) over the past six years. The current balance in her

> In 2018, Nina contributes 10 percent of her $100,000 annual salary to her 401(k) account. She expects to earn a 7 percent before-tax rate of return. Assuming she leaves this (and any employer contributions) in the account until she retires in 25 years, w

> In 2018, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee contributes. The maximum employer contribution under th

> Matthew (48 at year-end) develops cutting-edge technology for SV, Inc. located in Silicon Valley. In 2018, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and in his company’s 401(k) plan. Under the money purchase p

> Tim has worked for one employer his entire career. While he was working, he participated in the employer’s defined contribution plan [traditional 401(k)]. At the end of 2018, Tim retires. The balance in his defined contribution plan is $2,000,000 at the

> Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2018). In 2018, his net Schedule C income was $300,000. This was his only source of income. This year, Reggie is considering setting up a retirement plan. What is the maxim

> Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2018). During 2018, her net Schedule C income was $300,000. This was her only source of income. This year, Rita is considering setting up a retirement plan. What is the maxim

> Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2018). In 2018, her net Schedule C income was $130,000. This was her only source of income. This year, Hope is considering setting up a retirement plan. What is the maximum a

> Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2018). In 2018, her net Schedule C income was $130,000. This was her only source of income. This year, Elvira is considering setting up a retirement plan. What is the maxim

> Sarah was contemplating making a contribution to her traditional individual retirement account for 2018. She determined that she would contribute $5,500 to her IRA and she deducted $5,500 for the contribution when she completed and filed her 2018 tax ret

> A taxpayer sells a piece of real property in year 1. The amount of year 1 real property taxes is estimated at the closing of the sale and the amounts are allocated between the buyer and the taxpayer. At the end of year 1, the buyer receives a property ta

> Alicia has been working for JMM Corp. for 32 years. Alicia participates in JMM’s defined benefit plan. Under the plan, for every year of service for JMM she is to receive 2 percent of the average salary of her three highest years of compensation from JMM

> Tater Meer purchased a new car for use in her business during 2018 for $75,000. The auto was the only business asset she purchased during the year and her business was very profitable. Calculate Tater’s maximum depreciation deductions for the automobile

> Lina purchased a new car for use in her business during 2018. The auto was the only business asset she purchased during the year and her business was extremely profitable. Calculate her maximum depreciation deductions (including §179 expense unless state

> Assume that Ernesto purchased a digital camera on July 10 of year 1 for $3,000. In year 1, 80 percent of his camera usage was for his business and 20 percent was for his personal photography activities. This was the only asset he placed in service during

> Hans runs a sole proprietorship. Hans has reported the following net §1231 gains and losses since he began business. Net §1231 gains shown are before the lookback rule. Year Net §1231 Gains/(Losses)  Year 1 ($65,000)  Year 2 15,000  Year 3 0 

> Acorn Construction (calendar-year end C-corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has record income and would like to maximize its cost recovery deduction for the curre

> Assume that Sivart Corporation has 2018 taxable income of $1,750,000 for purposes of computing the §179 expense and acquired several assets during the year. The delivery truck was acquired in a nontaxable transaction. Asset  Placed in Service Basis 

> Woolard Supplies (a sole proprietorship) has taxable income in 2018 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture had been used previously by Liz Woolar

> Chaz Corporation has taxable income in 2018 of $312,000 for purposes of computing the §179 expense and acquired the following assets during the year: Asset  Placed in Service Basis  Office furniture September 12 $780,000  Computer equipment F

> Assume that ACW Corporation has 2018 taxable income of $1,000,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018: Asset  Placed in Service Basis  Machinery September 12 $470,000  Computer equi

> Consider the settlement statement in Appendix A to this chapter. What amounts on the statement are the Jeffersons allowed to deduct on their 2018 tax return? Indicate the settlement statement line number for each deductible amount (discuss any issues tha

> Dain’s Diamond Bit Drilling purchased the following assets this year. Assume its taxable income was $53,000 for purposes of computing the §179 expense (assume no bonus depreciation). Asset  Purchase Date Original Basis  Drill Bits (5-year) January

> Assume Timberline Corporation’s 2018 taxable income of $240,000 for purposes of computing the §179 expense. It acquired the following assets in 2018: Purchase Date Basis  Furniture (7-year) December 1 $450,000  Computer Equipment (5-year) Fe

> Assume TDW Corporation’s (calendar year end) has 2018 taxable income of $650,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018: Asset  Placed in Service Basis  Machinery September 12 $2,270,000

> Assume AMP Corporation (calendar year end) has 2018 taxable income of $900,000 for purposes of computing the §179 expense. During 2018, AMP acquired the following assets: Asset  Placed in Service Basis  Machinery September 12 $1,550,000  Compu

> LaMont works for a company in downtown Chicago. The company encourages employees to use public transportation (to save the environment) by providing them with transit passes at a cost of $265 per month. a. If LaMont receives one pass (worth $265) each m

> Tonya Jefferson (single), a sole proprietor, runs a successful lobbying business in Washington, D.C. She doesn’t sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, to buy a pla

> Way Corporation disposed of the following tangible personal property assets in the current year. Assume that the delivery truck is not a luxury auto. Calculate Way Corporation’s 2018 depreciation deduction (ignore §179 expense and bonus depreciation for

> Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2018, she sells the following long-term assets used in her business: Sales Price Cost Accumulated Depreciation  Building $ 230,000 $200,000 $52,000  Equipment 8

> At the beginning of the year, Dee began a calendar-year business and placed in service the following assets during the year: Asset Date Acquired Cost Basis  Computer equipment 3/23 $5,000  Furniture 5/12 $7,000  Pickup truck 9/15 $10,000

> What is the qualified business income deduction and how does it affect the tax rate on flow-through entity income?

> Buckley, an individual, began a business two years ago and has never sold a §1231 asset. Buckley owned each of the assets since he began the business. In the current year, Buckley sold the following business assets: Asset  Original Cost Accumulated De

> At the beginning of the year, Poplock began a calendar-year dog boarding business called Griff’s Palace. Poplock bought and placed in service the following assets during the year: Asset Date Acquired Cost Basis  Computer equipment 3/23 $5,000  

> Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. Answer the questions presented in the following alternative scenarios (assume Hart had no

> Troy (single) purchased a home in Hopkinton, Massachusetts, on January 1, 2007 for $300,000. He sold the home on January 1, 2018 for $320,000. How much gain must Troy recognize on his home sale in each of the following alternative situations? a. Troy ren

> Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Assume accumulated depreciatio

> Brittany started a law practice as a sole proprietor. She owned a computer, printer, desk, and file cabinet she purchased during law school (several years ago) that she is planning to use in her business. What is the depreciable basis that Brittany shoul

> Seiko’s current salary is $85,000. Her marginal tax rate is 32 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an Idaho Office Supply. Her friend, knowing of her interest in sports cars,

> Lars Osberg, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lars $8,500 to purchase if he pays for it himself through the health exchange (Lars’s AGI is too high to receive any tax deducti

> 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 $25 million and leaves it all to Harold. He dies several years later, leavi

> Roberta is considering making annual gifts of $15,000 of stock each to each of her four children. She expects to live another five years and to leave a taxable estate worth approximately $18 million. She requests you justify the gifts by estimating her e

> For flow-through entities with individual owners, how many times is flow-through entity income taxed, who pays the tax, and what is the tax rate?

> Roland had a taxable estate of $15.5 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 taxa

> Eagle Inc., a U.S. corporation intends to create a limitada (limited liability company) in Brazil in 2018 to manufacture pitching machines. The company expects the operation to generate losses of US$2,500,000 during its first three years of operations. E

> 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 2018, Chapeau has $2,000 of gross income, $1,200 from U.S. sources and $800 from sourc

> Carmen SanDiego, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. On April 1, 2018, GM relocated Carmen to its Brazilian operations for the remainder of 2018. Carmen was paid a salary of $120,000 and was employed on a 5-day

> Mackinac Corporation, a U.S. corporation, reported total taxable income of $5 million. Taxable income included $1.5 million of foreign source taxable income from the company’s branch operations in Canada. All of the branch income is foreign branch income

> Use the facts in problem 37. If Guido meets the statutory requirements to be considered a resident of both the United States and Belgium, what criteria does the U.S.-Belgium treaty use to “break the tie” and determine Guido’s country of residence? Look a

> 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 2016, Guido came to the United States for the first time. The sole purpose of his trip was business. He intended t

> Use California Publication 1061 (2016) to determine the various tests California uses to determine whether two or more entities are part of a unitary group.

> Kai operates the Surf Shop in Laie, Hawaii, which designs, manufacturers, and customizes surf boards. Hawaii has a hypothetical 4 percent excise tax technically paid by the seller. However, the state also allows "tax on tax" to be charged, which effect

> Marco, Jaclyn, and Carrie formed Daxing Partnership (a calendar-year-end entity) by contributing cash 10 years ago. Each partner owns an equal interest in the partnership. Marco, Jaclyn, and Carrie each have an outside basis in his/her partnership intere

> Is business income allocated from a flow-through entity to its owners self-employment income? Explain.

> At the end of last year, Lisa, a 35 percent partner in the five-person LAMEC Partnership, has an outside basis of $60,000 including her $30,000 share of LAMEC debt. On January 1 of the current year, Lisa sells her partnership interest to MaryLynn for a c

> Rather than purchase BLI directly (as in problems 47 and 48), Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the business from Ernesto in a tax-deferred Type A merger. Amy and Brian would like Ernesto to continue to run BL

> On August 28, 2017, Mirna Therapeutics, Inc., completed its business combination with Synlogic, Inc. The Form 8-K for Synlogic (NASDAQ ticker SYBX, cik 0001667986) describes the transaction and was filed with the SEC on August 28, 2017. You can access th

> On September 12, 2017, Inotek Pharmaceuticals agreed to acquire Rocket Pharmaceuticals, Ltd., a privately held biopharmaceutical company in a tax-deferred acquisition. The Form 8-K for Inotek (NASDAQ ticker ITEK, cik 0001281895) describes the transaction

> Badger Corporation declared a stock distribution to all shareholders of record on March 25 of this year. Shareholders will receive one share of Badger stock for each ten shares of stock they already own. Madison Cheesehead owns 1,000 shares of Badger sto

> Tiny and Tim each own half of the 100 outstanding shares of Flower Corporation. This year Flower reported taxable income of $6,000. In addition, Flower received $20,000 of life insurance proceeds due to the death of an employee (Flower paid $500 in life

> Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land’s fair market value was $20,000 and its tax and E&P basis to Beav

> Illini Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of an automobile to its sole shareholder, Carly Urbana. The auto’s fair market value was $30,000 and its tax basis to I

> Tiger Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Mike Fairway. The land’s fair market value was $75,000 and its tax and E&P basis to Tig

> Volunteer Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Rocky Topp. The land’s fair market value was $75,000 and its tax and E&P basis to V

> Doug is considering investing in one of two partnerships. One is located in Canada and one is located in Arizona. Assuming both investments will generate the same before-tax rate of return, which entity should Doug invest in when considering the after-ta

> Paladin, Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of 210,000. The company reported a capital gain from sale of investments of $150,000, which was partially offset by a $100,000 net capital loss carryover from las

> Gator, Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $210,000. Included in the company’s computation of taxable income is gain from sale of a depreciable asset of $50,000. The income tax basis of the asset was $100

> Boilermaker, Inc. reported taxable income of $500,000 this year and paid federal income taxes of $105,000. Not included in the company’s computation of taxable income is tax-exempt income of $20,000, disallowed meals and entertainment expenses of $30,000

> This year Bobcat Company reports current E&P of negative $300,000 that accrued evenly throughout the year. At the beginning of the year, Bobcat’s accumulated E&P was a $200,000. Bobcat distributed $200,000 to its sole shareholder, Melanie Rushmore, on Ju

> Bulldog Corporation reported taxable income of $500,000 this year before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to Georgia at year-end. The bonus meets the requirement

> Gopher Corporation reported taxable income of $500,000 this year. Gopher paid a dividend of $100,000 to its sole shareholder, Sven Anderson The dividend meets the requirements to be a qualified dividend and Sven is subject to a tax rate of 15% on the d

> Randolph Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book-tax difference of $300,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary

> What was Alphabet Inc.’s (Google) accounting effective tax rate for 2017? What items caused the company’s accounting effective tax rate to differ from the “hypothetical” tax rate of 35 percent? What was the company’s cash effective tax rate for 2017? Wha

> Access the 2017 Form 10-Ks for General Motors, Inc. and Berkshire Hathaway. What was the impact of the Tax Cuts and Jobs Act on their income tax provision for 2017? Why was the impact in opposite directions (i.e., in one case the provision increased and

> Burcham Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable inc

> With recent tax law changes, are taxpayers likely to receive more or less tax savings from home mortgage interest deductions?

> Ann Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable permanent differences of $100,000. Compute the company’s

> Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest. The company’s prior year tax return showed taxable in

> Shaw, Inc. reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Shaw, Inc. sold a fixed asset and reported book gain of