Question: Otis is the CEO of Rectify, Inc.,

> Fallow Corporation is subject to tax only in State X. Fallow generated the following income and deductions. State income taxes are not deductible for X income tax purposes. Sales………………………………………………………………………………………………$4,000,000 Cost of sales………………………………………

> Enercio contributes $100,000 in exchange for a 40% interest in the calendar year ABC LLC, which is taxed as a partnership. This year, the LLC generates $80,000 of ordinary taxable income. Enercio withdrew $10,000 from the partnership during the year. Ene

> Keystone, your tax consulting client, is considering an expansion program that would entail the construction of a new logistics center in State Q. List at least five questions you should ask in determining whether an asset that is owned by Keystone is to

> Dillman Corporation has nexus in States A and B. Dillman’s activities for the year are summarized below. Determine the apportionment factors for A and B assuming that A uses a three-factor apportionment formula under which sales, prop

> Use Exhibit 24.1 to compute Balboa Corporation’s State F taxable income for the year. Addition modifications………………&

> On June 1 of the current tax year, Elisha and Ezra (who are equal partners) contribute property to form the Double E Partnership. Elisha contributes cash of $200,000. Ezra contributes a building and land with an adjusted basis and fair market value of $3

> Townsend, the sole shareholder of Pruett Corporation, has a $480,000 basis in his stock. He exchanges his Pruett stock for $600,000 of Rogers Corporation voting common stock plus land with a fair market value of $100,000 and basis of $25,000 that is tran

> What is the difference between a general partnership and a limited liability company? When might each type of entity be used? Why?

> Last year, Pink Corporation acquired land and securities in a § 351 tax-free exchange. On the date of the transfer, the land had a basis of $720,000 and a fair market value of $1 million, and the securities had a basis of $110,000 and a fair market value

> Beckett Corporation realized $800,000 of taxable income from the sales of its products in States A and B. Beckett’s activities establish nexus for income tax purposes in both states. Beckett’s sales, payroll, and prope

> Your client, Royal Corporation, generates significant interest income from its working capital liquid investments. Write a memo for the tax research file, discussing the planning opportunities presented by establishing a passive investment company. Suppo

> What is a partnership agreement? What types of provisions does it include?

> Tobias is a 50% member in Solomon LLC, which does not invest in real estate. On January 1, Tobias’s adjusted basis for his LLC interest is $130,000, and his at-risk amount is $105,000. His share of losses from Solomon for the current year is $150,000, al

> How does a proportionate current distribution of cash from a partnership to a partner compare with one from a Subchapter C corporation to a shareholder?

> In terms of the rules applying to a § 332 parent-subsidiary liquidation, comment on each of the following: a. The parent corporation’s ownership interest in the subsidiary. b. The period of time in which the subsidiary must liquidate. c. The solvency of

> Partin, Inc., a foreign subsidiary of Jones, Inc., a U.S. corporation, reports pretax income of 200,000 euros for the current year. Partin accrues 60,000 euros in foreign taxes on this income. The average exchange rate for the tax year to which the taxes

> Wong, Inc., a § 501(c)(3) organization, is a private foundation with a tax year that ends on May 31. Gross receipts for the fiscal year are $180,000, and the related expenses are $160,000. a. Is the entity required to file an annual information return? b

> Discuss situations in which the partnership entity form might be more advantageous (or disadvantageous) than operating as a Subchapter C or S corporation.

> When is partnership income subject to self-employment tax or the net investment income tax by an individual partner?

> What is a partner’s capital account? Describe how a partner’s ending capital account balance is determined.

> Your client, Ecru Limited, uses a small sales force to solicit sales of its wholesale restaurant supplies. Ecru is based in State W, and the sales representatives are assigned territories in States X, Y, and Z. Ecru owns no property and employs no other

> Legends Corporation owns and operates two manufacturing facilities, one in State A and the other in State B. Due to a temporary decline in sales, Legend has rented 25% of its State A facility to an unaffiliated corporation. Legend generated $200,000 net

> Discuss the adjustments that must be made to a partner’s basis in the partnership interest. When are such adjustments made? Why?

> 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

> Upward and Onward, Inc., a § 501(c)(3) organization that provides training programs for welfare recipients, reports the following income and expenses from the sale of products associated with the training program. Calculate Upward and Onward’s UBIT. Gro

> Pablo has a $63,000 basis in his partnership interest. On May 9 of the current tax year, the partnership distributes to him, in a proportionate current distribution, cash of $25,000, cash basis receivables with an inside basis of $0 and a fair market val

> Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement p

> Dove Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. The shares are owned as follows: Julia, 600 shares; Maxine (Julia’s sister), 300 shares; and Janine (Julia’s daughter), 100 shares. Dove Corporation owns land (basis of $300,000,

> 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 Germ

> In a qualifying reorganization, Cato exchanges $1.2 million worth of stock and property valued at $500,000 ($245,000 basis) for all of Firestar’s assets, which have a value of $1.7 million and a $350,000 basis. Firestar distributes the property received

> Continue with the facts of Problem 44. What are the Federal income tax withholding requirements with respect to Martinho’s sale? Who pays the withheld amount to the U.S. Treasury?

> Martinho is a citizen of Brazil and lives there year-round. He has invested in a plot of Illinois farmland with a tax basis to him of $1 million. Martinho has no other business or investment activities in the United States. He is not subject to the alter

> Roadrunner, Inc., is an exempt medical organization. Quail, Inc., a sporting goods retailer, is a wholly owned subsidiary of Roadrunner. Roadrunner inherited the Quail stock last year from a major benefactor of the medical organization. Quail’s taxable i

> Using the following information from the books and records of Grande Corporation, determine Grande’s total sales that are subject to State C’s sales tax. Grande operates a retail general store. Sales to C consumers, general merchandise………………………………………………

> The trend in state income taxation is for states to adopt a version of the unitary theory of multijurisdictional taxation in their statutes and regulations. a. Explain why some states are attracted to the unitary theory and a combined reporting scheme o

> Rebecca holds 100 shares of Gotchas stock that she purchased for $1,000 several years ago. In a merger of Gotchas into Solis, Inc., Rebecca exchanges her 100 Gotchas shares for 1,000 Solis shares and $500. Gotchas is valued at $40 per share and Solis at

> Perk Corporation is subject to tax only in State A. Perk generated the following income and deductions. Federal taxable income………………………………….……………………………….$300,000 State A income tax expense………………………………….…………………..…………15,000 Refund of State A income tax………

> Blunt, Inc., a U.S. corporation, earned $600,000 in total taxable income, including $80,000 in foreign-source taxable income from its German branch’s manufacturing operations and $30,000 in foreign-source taxable income from its Swiss branch’s engineerin

> Assume in Problem 28 that the land had a fair market value of $630,000 on the date of its transfer to the corporation. On the date of the liquidation, the land’s fair market value has decreased to $500,000. How would your answer to Problem 28 change if:

> 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

> 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

> Evaluate this statement: An S corporation can facilitate the meeting of its state income tax filing obligations by developing a common spreadsheet that allocates and apportions income among the states with which it has nexus. This spreadsheet is attached

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

> Gloria Martinez, an NRA, is a professional golfer. She played in seven tournaments in the United States in the current year and earned $250,000 in prizes from these tournaments. She deposited the winnings in a bank account she opened in Mexico City after

> An exempt organization appropriately makes the § 501(h) election to lobby on a limited basis. The amount of its lobbying expenditures is less than its lobbying expenditures ceiling, yet it is subject to a tax at a 25% rate. Explain.

> For each of the following organizations, determine its UBTI and any related UBIT. a. Worn, Inc., an exempt organization, provides food for the homeless. It operates a thrift store that sells used clothing to the general public. The thrift shop is staffed

> For each of the following items considered independently, indicate whether the circumstances call for an addition modification (A), a subtraction modification (S), or no modification (N) in computing state taxable income. Then indicate the amount of any

> Winston recently became the treasurer of Homeless, Inc., a § 501(c)(3) organization that feeds individuals who are in challenging circumstances. One of the entity’s directors has proposed that Homeless purchase and operate a fast-food franchise, to raise

> 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%

> You are working with the top management of one of your clients in selecting the U.S. location for a new manufacturing operation. Craft a plan for the CEO to use in discussions with the economic development representatives of several candidate states. In

> Goose Corporation has a basis of $2.4 million in the stock of Swift Corporation, a wholly owned subsidiary acquired 30 years ago. Goose liquidates Swift Corporation and receives assets that are worth $2 million and have a basis to Swift of $1.7 million.

> Shane and Brittany both serve as treasurer for a § 501(c)(3) exempt organization. Neither exempt organization is a church. Each year, Shane’s exempt organization files a Form 990 while Brittany’s exempt organization files a Form 990–PF. Discuss the publi

> Determine whether the sourcing of income for the following sales is U.S. or foreign. a. Suarez, an NRA, sells stock in Home Depot, a U.S. corporation, through a broker in San Antonio. b. Chris sells stock in IBM, a U.S. corporation, to her brother, Rich.

> Fillon Corporation’s operations include two manufacturing facilities, one in State A and one in State B. The plant located in A generated $200,000 of income, and the plant located in B generated a loss of $50,000. Therefore, Fillon’s total taxable income

> Your client, HillTop, is a retailer of women’s clothing. It has increased sales during the holiday season by advertising gift cards for in-store and online use. HillTop has found that gift card holders who come into the store tend to purchase goods that

> Isle Corporation’s entire operations are located in State A. Of Isle’s $600,000 sales, 60% are made in State A and 40% are made in State B. Isle’s solicitation of sales in State B is limited to mailing a monthly catalog to its customers in that state. Ho

> Indicate whether each of the following items should be allocated or apportioned by the taxpayer in computing state corporate taxable income. Assume that the state follows the general rules of UDITPA. a. Profits from sales activities. b. Profits from cons

> Hosha exchanges all of her Leaf stock for Petal stock plus $5,000 cash. The exchange is pursuant to a tax-free reorganization. Hosha paid $25,000 for the Leaf stock five years ago. The Petal stock received by Hosha has an $18,000 fair market value. a. Wh

> Continue with the facts of Question 4. CheapPhones, one of Josie’s customers who is facing tight cash flow problems, wants to return about 100 defective cell phones. Talk2Me tells Josie to bring the phones back to headquarters. Fearing that she will lose

> Josie is a sales representative for Talk2Me, a communications retailer based in Fort Smith, Arkansas. Josie’s sales territory is Oklahoma, and she regularly takes day trips to Tulsa to meet with customers. During a typical sales call, Josie takes the cus

> Assume the same facts as in Problem 51. Assume that Burgundy, Inc.’s annual guaranteed payment is increased to $120,000 starting on January 1, 2018, and the LLC’s taxable income for 2017 and 2018 (after deducting Burgundy’s guaranteed payment) is the sam

> List some general guidelines that a taxpayer can use to determine whether it has an obligation to file an income tax return with a particular state. (Include the terms nexus and domicile in your answer.)

> Complete the following chart by indicating whether each item is true or false. Explain your answers by referencing the overlap of rules appearing in Federal and most state income tax laws. True or Item False a. Most of the states start with Federal

> What is the purpose of the three rules that implement the economic effect test?

> Continue with the facts of Problem 44. What are the Federal income tax withholding requirements with respect to Martinho’s sale? Who pays the withheld amount to the U.S. Treasury? Facts from Problem 44 Martinho is a citizen of Brazil and lives there yea

> John McPherson is single, an attorney, and a U.S. citizen. He recently attended a seminar where he learned he could give up his U.S. citizenship, move to Bermuda (where he would pay no income tax), and operate his law practice long distance via the inter

> Trace, Ltd., an Allegro corporation, operates a trade or business in the United States. Trace’s U.S.-source income effectively connected with this trade or business is $800,000 for the current year. Trace’s current-year E & P is $600,000. Trace’s net U.S

> When Padgett Properties LLC was formed, Nova contributed land (value of $200,000 and basis of $50,000) and $100,000 cash, and Oscar contributed cash of $300,000. Both members received a 50% interest in LLC profits and capital. a. How is the land recorded

> Abby Wang recently became the treasurer of First Point Church. The church has existed for three years and never has filed any documents with the IRS. a. Identify any Federal income tax reporting responsibilities that Abby might have as church treasurer.

> Wonderful Wilderness, Inc., is a tax-exempt organization. Its mission is to “explore, enjoy, and protect the wild places of the earth; practice and promote the responsible use of the earth’s ecosystems and resources; educate and enlist humanity to protec

> Gray, Inc., a private foundation, reports the following items of income and deductions. Gray is not eligible for the 1% tax rate on net investment income. Interest income……………………………………………………….$ 29,000 Rent income……………………………………………………………….61,000 Dividend

> Burgundy, Inc., and Violet 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 Burgundy

> Define the following with respect to unrelated business income from debt financed property. a. Debt-financed income. b. Debt-financed property. c. Acquisition indebtedness.

> Pigeon, Inc., a § 501(c)(3) organization, received support from the following sources. Governmental unit A for services rendered…………………………………………….$ 6,300 Governmental unit B for services rendered……………………………………………….4,500 Fees from the general pub

> Initiate, Inc., a § 501(c)(3) organization, receives the following revenues and incurs the following expenses. Grant from Gates Foundation……………………………………………………$ 70,000 Charitable contributions received………………………………………………..625,000 Expenses in carrying out

> Chang Corporation is part of a three-corporation unitary business. The group has a water’s edge election in effect with respect to unitary State Q. State B does not apply the unitary concept with respect to its corporate income tax laws

> Save, Inc., an exempt organization, sells the following assets during the tax year. Determine the effect of these transactions on Save’s unrelated business taxable income. Asset Gain (Loss) Use Land and building $100,000 In exempt

> Assume the same facts as in Problem 40, with the following exceptions: • Reece purchased the land five years ago for $120,000. Its fair market value was $90,000 when it was contributed to the LLC. • A few years later,

> Kim Corporation, a calendar year taxpayer, operates manufacturing facilities in States A and B. A summary of Kim’s property holdings follows. Determine Kim’s property factors for the two states. The statutes of both

> Paul and Anna plan to form the PA LLC by the end of the current year to produce and sell specialty athletic apparel. Paul and Anna will both serve as member-managers of the LLC and will be active in its operations. The members will each contribute $80,00

> 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

> Money, Inc., a U.S. corporation, has $500,000 to invest overseas. For U.S. tax purposes, any additional gross income earned by Money will be taxed at 34%. Two possibilities for investment are: a. Invest the $500,000 in common stock of Exco (a foreign cor

> This year, Callie and Neil formed the equally owned CN LLC. Callie contributed $300,000 of cash and Neil contributed real estate valued at $450,000 (basis of $100,000). The property was subject to a nonrecourse liability of $150,000 that was assumed by t

> 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 60% interest

> As the director of the multistate tax planning department of a consulting firm, you are developing a brochure to highlight the services it can provide. Part of the brochure is a list of five or so key techniques that clients can use to reduce state incom

> What types of expenditures might a new partnership incur? How are those costs treated for Federal tax purposes? Create a chart describing the expenditure, the treatment, and the Code section requiring this treatment.

> How does a partnership calculate depreciation on property that is contributed by a partner? If the partnership incurs additional costs that must be capitalized (i.e., transfer taxes related to changing the title), how are those costs treated?

> On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows: Within 30 days of formation, FM collects the receivables and sells the inventory for $60,000 cash. How much income does FM recognize from

> Compare the provision for the non-recognition of gain or loss on contributions to a partnership (i.e., § 721) with the similar provision related to corporate formation (i.e., § 351). What are the major differences and similarities?

> State E applies a throwback rule to sales, while State F does not. State G has not adopted an income tax to date. Clay Corporation, headquartered in E, reported the following sales for the year. All of the goods were shipped from Clay’s

> Describe how a partnership reports its income for tax purposes. Who makes most elections related to partnership income and deductions? What theory underlies this treatment?

> Wellness, Inc., a § 501(c)(3) organization, makes lobbying expenditures of $340,000 this year. Exempt purpose expenditures were $600,000 for the first six months of the year and $950,000 for the last six months of the year. Determine the Federal income t

> For each of the following organizations, determine its UBTI and any related UBIT. a. AIDS, Inc., an exempt charitable organization that provides support for individuals with AIDS, operates a retail medical supply store open to the general public. The net

> 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

> Create a PowerPoint outline describing the major exemptions and exclusions from the sales/use tax base of most states. Use your slides to discuss this topic with your accounting students’ club.

> Quinn Corporation is subject to tax in States G, H, and I. Quinn’s compensation expense includes the following. Officers’ salaries are included in the payroll factor for G and I, but not for H. Compute Quinnâ&#

> A subsidiary corporation is liquidated under § 332. Pursuant to its liquidation, the subsidiary distributed property to a minority shareholder. With respect to this distribution, what are the tax consequences to the subsidiary corporation and to the mino

> Assume the same facts as in Problem 48, except that Suz-Anna was formed as an LLC instead of a general partnership. Facts from Problem 48, Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a

> Assume the same facts as in Problem 48, and assume that Suz-Anna prepares the capital account roll forward on the partners’ Schedules K–1 on a tax basis. Facts from Problem 48 Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange fo