Question: Samuel Reese sold 1,000 shares of

> Regarding the apportionment formula used to compute state taxable income, does each of the following independent characterizations describe a taxpayer that likely is based in state or out of state? Explain. a. The sales factor is positively correlated wi

> For purposes of the related-party loss limitation within the context of a complete liquidation of a corporation, what is the definition of disqualified property?

> Phoebe and Parker are equal members in Phoenix Investors LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions. Phoenix then purchased a parcel of land. On January 1 of the current year, to acquire a one-t

> Cerulean, Inc., Coral, Inc., and Crimson, Inc. form the Three Cs Partnership on January 1 of the current year. Cerulean is a 50% partner, and Crimson and Coral are 25% partners. For reporting purposes, Crimson uses a fiscal year with an October 31 year-e

> Browne and Red, both C corporations, formed the BR Partnership on January 1, 2015. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR’s gross receipts were $4.6 million, $5 million, $6 million, and $7 million, respe

> On July 1 of the current year, the R & R Partnership (a limited partnership using a calendar tax year) was formed to operate a bed-and-breakfast. The partnership paid $3,000 in legal fees for drafting the partnership agreement and $5,000 for accounting f

> Tom and Missy form TM Partnership, Ltd. (a limited partnership), to own and operate certain real estate. Tom contributed land, and Missy contributed cash to be used for setting up the entity and creating a plan for developing the property. Once a develop

> The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2017, Jessica contributed land valued at $600,000 to the partnership, in exchange for a 50% interest in JM. She had purchased the land in 2009 for $42

> Continue with the facts presented in Problem 32. At the end of the first year, the LLC distributes $100,000 of cash to Sam. No distribution is made to Drew. a. Under general tax rules, how would the payment to Sam be treated? b. Under general tax rules,

> Continue with the facts presented in Problem 32. Facts from Problem 32. Sam and Drew are equal partners in SD LLC formed on June 1 of the current year. Sam contributed land that he inherited from his uncle in 2009. Sam’s uncle purchased the land in 1984

> Clario, S.A., a Peruvian corporation, manufactures furniture in Peru. It sells the furniture to independent distributors in the United States. Because title to the furniture passes to the purchasers in the United States, Clario reports $2 million in U.S.

> Sam and Drew are equal partners in SD LLC formed on June 1 of the current year. Sam contributed land that he inherited from his uncle in 2009. Sam’s uncle purchased the land in 1984 for $30,000. The land was worth $100,000 when Sam’s uncle died. The fair

> Fish, Inc., an exempt organization, reports unrelated business income of $500,000 (before any charitable contribution deduction). During the year, Fish makes charitable contributions of $54,000, of which $38,000 are associated with the unrelated trade or

> From the perspective of the parent corporation, contrast the tax consequences of a subsidiary liquidation under the general nonrecognition rules with a subsidiary liquidation that follows a § 338 election.

> Assume the same facts as in Problem 30, except that Mike sells his land to a third party for $100,000 and then contributes that cash to the partnership in addition to the original $40,000 contribution. The partnership locates equivalent land that it purc

> Mike and Melissa form the equal MM Partnership. Mike contributes cash of $40,000 and land (fair market value of $100,000, adjusted basis of $120,000), and Melissa contributes the assets of her sole proprietorship (value of $140,000, adjusted basis of $11

> Liz and John formed the equal LJ Partnership on January 1 of the current year. Liz contributed $80,000 of cash and land with a fair market value of $90,000 and an adjusted basis of $75,000. John contributed equipment with a fair market value of $170,000

> Kenisha and Shawna form the equal KS LLC with a cash contribution of $360,000 from Kenisha and a property contribution (adjusted basis of $380,000, fair market value of $360,000) from Shawna. a. How much gain or loss, if any, does Shawna realize on the t

> Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property with an adjusted basis of $40,000 and a fair market value of $100,000. a. How much gain, if any, must Emma recognize on the transfer? Must Laine r

> BDD Partnership is a service-oriented partnership that has three equal general partners. One of them, Barry Evans, sells his interest to another partner, Dale Allen, on December 31 of the current tax year for $90,000 of cash and the assumption of Barry&a

> In each of the following independent liquidating distributions in which the partnership also liquidates, determine the amount and character of any gain or loss to be recognized by each partner and the basis of each asset (other than cash) received. In ea

> Last year, a shareholder transferred land (basis of $650,000, fair market value of $575,000) to Roadrunner Corporation in a § 351 transaction. This was the only property transferred to Roadrunner at that time. During the current year, Roadrunner Corporat

> At the beginning of the tax year, Melodie’s basis in the MIP LLC was $60,000, including her $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 of $1

> In each of the following independent cases in which the partnership owns no hot assets, indicate: • Whether the partner recognizes gain or loss. • Whether the partnership recognizes gain or loss. • The partner’s adjusted basis for the property distribute

> Save the Squirrels, Inc., a § 501(c)(3) organization that feeds the squirrels in municipal parks, receives a $250,000 contribution from Animal Feed, Inc., a corporation that sells animal feed. In exchange for the contribution, Save the Squirrels will ide

> The stock of Quail Corporation is held as follows: 85% by Pheasant Corporation and 15% by Gisela, an individual. Quail Corporation is liquidated in December of the current year pursuant to a plan adopted earlier in the year. At the time of its liquidatio

> When Teri’s outside basis in the TMF Partnership is $80,000, the partnership distributes to her $30,000 of cash, an account receivable (fair market value of $60,000, inside basis to the partnership of $0), and a parcel of land (fair market value of $60,0

> In general, what are the tax consequences of a § 338 election?

> Gil’s outside basis in his interest in the GO Partnership is $100,000. In a proportionate current distribution, the partnership distributes to him cash of $30,000, inventory (fair market value of $40,000, basis to the partnership of $20,000), and land (f

> Four GRRLs Partnership is owned by four girlfriends. 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 (Lacy’s basis is $250,000). a. How much loss, if any, ma

> Jasmine Gregory is a 20% member in Sparrow Properties LLC, which is a lessor of residential rental property. Her share of the LLC’s losses for the current year is $100,000. Immediately before considering the deductibility of this loss, Jasmine’s capital

> The BCD Partnership plans to distribute cash of $20,000 to partner Brad at the end of the tax year. The partnership reported a loss for the year, and Brad’s share of the loss is $10,000. At the beginning of the tax year, Brad’s basis in his partnership i

> IrishCo, a manufacturing corporation resident in Ireland, distributes products through a U.S. office. Current-year taxable income from such sales in the United States is $12 million. IrishCo’s U.S. office deposits working capital funds in short-term cert

> Dunne, Inc., a U.S. corporation, earned $500,000 in total taxable income, including $50,000 in foreign-source taxable income from its branch manufacturing operations in Brazil and $20,000 in foreign-source income from interest earned on bonds issued by D

> Weather, Inc., a domestic corporation, operates in both Fredonia and the United States. This year, the business generated taxable income of $600,000 from foreign sources and $900,000 from U.S. sources. All of Weather’s foreign source income is in the gen

> Brandy, a U.S. corporation, operates a manufacturing branch in Chad, which does not have an income tax treaty with the United States. Brandy’s worldwide Federal taxable income is $30 million, so it is subject to a 35% marginal tax rate.

> An exempt municipal hospital operates a pharmacy that is staffed by a pharmacist 24 hours per day. The pharmacy serves only hospital patients. Is the pharmacy likely an unrelated trade or business? Explain.

> An exempt organization is considering conducting bingo games on Thursday nights as a way of generating additional revenue to support its exempt purpose. Before doing so, however, the president of the organization has come to you for advice regarding the

> Really Welcome, Inc., a tax-exempt organization, receives 30% of its support from disqualified persons. Another disqualified person has agreed to match this support if Really Welcome will appoint him to the organization’s board of directors. What tax iss

> Davis, an officer for a § 501(c)(3) organization, receives benefits that are inappropriate in the context of a charitable entity. The excess benefits are determined to be $35,000. Davis does not pay back the excess benefits to the organization before the

> Helpers, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $250,000 for the taxable year and grass roots expenditures of $0. Exempt purpose expenditures for the taxable year are $1,200,000. Helpers elects to be eligible to make

> Rejoice, Inc., a private foundation, has existed for 10 years. Rejoice held undistributed income of $160,000 at the end of its 2015 tax year. Of this amount, $90,000 was distributed in 2016, and $70,000 was distributed during the first quarter of 2017. T

> Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company’s operations, and he is the only person working at the company tha

> Alice owns 100 percent of Medical Data, a C corporation, and 100 percent of Your Realtors, an S corporation. She worked full-time for Medical Data (i.e., she materially participated in the entity), but Alice did not materially participate in Your Realtor

> 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 interest

> Tiger, Inc., a calendar year S corporation, is owned equally by four shareholders: 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 distribute

> Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2017. The company generated a $74,000 NOL in 2016 and another NOL of $43,000 in 2017. Orange recorded no other transactions for the year. At all times i

> Green Corporation’s assets are valued at $920,000 after payment of all corporate debts, except for $134,000 of taxes payable on net gains it recognized on the liquidation. Bruno, an individual and the sole shareholder of Green, has a basis of $280,000 in

> Blue is the owner of all of the shares of an S corporation, and 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 Blue

> In Problem 44, how much of the Whitman loss belongs to Ann and Becky? Becky’s stock basis is $41,300. Facts from Problem 44 At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a

> At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a $120,000 loss for the year (not a leap year). On the 189th day of the year, Ann sells her half of the Whitman stock to her so

> 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

> Assume the same facts as in Problem 40, except that Jeff’s share of corporate taxable income is only $8,000 and there is no cash distribution. However, the corporation repays the $10,000 loan principal to Jeff. Discuss the related Federal income tax effe

> Assume the same facts as in Problem 40, except that there is no cash distribution, but the corporation repays the loan principal to Jeff. Discuss the tax effects. Facts from Problem 40 At the beginning of the year, Ann and Becky own equally all of the s

> Jeff, a 52% owner of an S corporation, has a stock basis of zero at the beginning of the year. Jeff’s basis in a $10,000 loan made to the corporation and evidenced by a corporate note has been reduced to zero by pass-through losses. During the year, his

> Zebra, Inc., a calendar year S corporation, incurred the following items this year. Sammy is a 40% Zebra shareholder throughout the year. Operating income………………………………………………………………..$100,000 Cost of goods sold………………………………………………………………..(40,000) Depreciatio

> Maul, Inc., a calendar year S corporation, incurred the following items. Tax-exempt interest income…………………………………$ 7,000 Sales…………………………………………………………………..140,000 Depreciation recapture income………………………………12,000 Long-term capital gain………………………………………….20,000

> On January 4, 2017, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under § 351. The shareholder’s basis, the fair market value, and the built-in gai

> The profit and loss statement of Kitsch Ltd., an S corporation, shows $100,000 book income. Kitsch is owned equally by four shareholders. From supplemental data, you obtain the following information about items that are included in book income. Selling

> Based upon the following facts about Aqua, Inc., a calendar year S corporation, prepare the entity’s Schedule M-2. AAA, beginning of the year……………………………………………………….$ 9,400 Ordinary income………………………………………………………………………24,600 Tax-exempt income…………………………………………

> Friedman, Inc., an S corporation, holds some highly appreciated land and inventory and some marketable securities that have declined in value. It anticipates a sale of these assets and a complete liquidation of the company over the next two years. Arnold

> Bonnie and Clyde each own one-third of a fast-food restaurant, and their 13-year-old daughter owns all of the other shares. Both parents work full-time in the restaurant, but the daughter works infrequently. Neither Bonnie nor Clyde receives a salary dur

> Flint, an S corporation with substantial AEP, reports operating revenues of $410,000, taxable interest income of $390,000, operating expenses of $260,000, and deductions attributable to the interest of $150,000. Calculate any passive investment income pe

> Whindy Corporation, an S corporation, reports a recognized built-in gain of $80,000 and a recognized built-in loss of $10,000 this year. Whindy holds an $8,000 unexpired NOL carryforward from a C corporation year. Whindy’s ordinary income for the year is

> A calendar year S corporation reports an ordinary loss of $80,000 and a capital loss of $20,000. Mei Freiberg owns 30% of the corporate stock and has a $24,000 basis in her stock. Determine the amounts of the ordinary loss and capital loss, if any, that

> Assume the same facts as in Problem 38, except that the cash distribution to Lizzie amounts to $40,000. Determine Lizzie’s stock basis at the end of the year and the treatment of her cash distribution. Facts from Problem 38, At the beginning of the tax

> At the beginning of the tax year, Lizzie holds a $10,000 stock basis as the sole shareholder of Spike, Inc., an S corporation. During the year, Spike reports the following. Determine Lizzie’s stock basis at the end of the year and the treatment of her ca

> Assume the same facts as in Problem 36, except that the two shareholders consent to an AAA bypass election. Facts from problem 36 Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock.

> Osprey Corporation stock is owned by Pedro and Pittro, who are unrelated. Pedro and Pittro each own 50% of the stock in the corporation. Osprey has the following assets (none of which were acquired in a § 351 or contribution to capital transa

> Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Both shareholders record a $400,000 stock basis as of January 1. At the beginning of the tax year, Money reports balances in AAA of

> Cougar, Inc., is a calendar year S corporation. Cougar’s Form 1120S shows non-separately stated ordinary income of $80,000 for the year. Johnny owns 40% of the Cougar stock throughout the year. The following information is obtained from the corporate rec

> Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2017. During 2018, Lonergan, Inc., distributes $140,000 to its shareholders, while sustaining an ordinary loss of $120,

> Spence, Inc., a calendar year S corporation, generates an ordinary loss of $110,000 and makes a distribution of $140,000 to its sole shareholder, Storm Nelson. Nelson’s stock basis and AAA at the beginning of the year are $200,000. Write a memo to your s

> During the year, Wheel, a calendar year S corporation in Stillwater, Oklahoma, generates the following AMT items: a positive adjustment of $66,000 for mining exploration costs, an excess depletion tax preference of $96,000, and a positive certified pollu

> McLin, Inc., is a calendar year S corporation. Its AAA balance is zero. a. McLin holds $90,000 of AEP. Tobias, the sole shareholder, has an adjusted basis of $80,000 in his stock. Determine the tax aspects if a $90,000 salary is paid to Tobias. b. Same a

> On January 1, Kinney, Inc., an S corporation, reports $4,000 of accumulated E & P and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and Frank, each of whom owns 500 shares of Kinney’s stock. Kinney’s nonseparately stated ordinary income

> Mary is a shareholder in CarrollCo, a calendar year S corporation. At the beginning of the year, her stock basis is $10,000, her share of the AAA is $2,000, and her share of corporate AEP is $6,000. At the end of the year, Mary receives from CarrollCo a

> Which of these taxes may be incurred by an S corporation? a. Alternative minimum tax. b. Tax on certain built-in gains. c. Property tax assessed by the county.

> 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 lives in Louisiana? Explain.

> Pursuant to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $650,000, fair market value of $880,000). a. Determine the gain or loss recognized by Carrot on the distribution if no liab

> Which of the following can be shareholders of an S corporation? a. Partnership. b. Limited liability partnership. c. Corporation. d. One-member limited liability company

> One shareholder of an S corporation takes a short-term unwritten cash advance of $9,100 during the tax year. Would this arrangement create a second class of stock? Explain.

> Which of the following are requirements to be an S corporation? a. Limited to an absolute maximum of 100 shareholders. b. Has no resident alien shareholders. c. Has only one class of stock. d. May have no straight debt. e. Cannot have any earnings and pr

> Using the categories in the following legend, classify each transaction as a plus (+) or minus (─) on Schedule M–2 of Form 1120S. An answer might look like one of these: +AAA or ─ OAA. a. Receipt of

> Caleb Samford calls you and says that his two-person S corporation was involuntarily terminated in February 2016. He asks you if they can make a new S election now, in November 2017. Draft a memo for your firm’s tax research file, outlining what you told

> On March 2, 2017, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident alien) on January 18, 2017. Identify any potential problems

> Bob Roman, the major owner of an S corporation, approaches you for some tax planning help. He would like to exchange some real estate in a like-kind transaction under § 1031 for real estate that may have some environmental liabilities. Prepare a letter t

> One of your clients is considering electing S status. Texas, Inc., is a six year- old company with two equal shareholders, both of whom paid $30,000 for their stock. Going into 2017, Texas holds a $110,000 NOL carryforward from prior years. Estimated inc

> Sheila Jackson is a 50% shareholder in Washington, Inc., an S corporation. This year, Jackson’s share of the Washington loss is $100,000. Jackson reports income from several other sources. Identify at least four tax issues related to the effects of the S

> For each of the following independent statements, indicate whether the transaction will increase (+), 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-term

> Sunset Corporation, with E & P of $400,000, makes a cash distribution of $120,000 to a shareholder. The shareholder’s basis in the Sunset stock is $50,000. a. Determine the tax consequences to the shareholder if the distribution is a nonqualified stock r

> Scott Tierney owns 21% of an S corporation. He is confused with respect to the amounts of the corporate AAA and his stock basis. Write a memo to Scott identifying the key differences between AAA and an S shareholder’s stock basis.

> Collette’s S corporation holds a small amount of accumulated earnings and profits (AEP), requiring the use of a more complex set of distribution rules. Collette’s accountant tells her that this AEP forces the maintenance of the AAA figure each year. Disc

> Greiner, Inc., a calendar year S corporation, holds no AEP. During the year, Chad, an individual Greiner shareholder, receives a cash distribution of $30,000 from the entity. Chad’s basis in his stock is $25,000. Compute Chad’s ordinary income and capita

> Noelle, the owner of all of the shares of ClockCo, an S corporation, transfers her stock to Grayson on April 1. ClockCo reports a $70,000 NOL for the entire tax year, but $10,000 of the loss occurs during January–March. Without a short-year election, how

> Matulis, Inc., a calendar year C corporation, owns a single asset with a basis of $325,000 and a fair market value of $800,000. Matulis holds a positive E & P balance. It elects S corporation status for 2018 and then sells the asset. Compute the corporat

> Kaiwan, Inc., a calendar year S corporation, is partly owned by Sharrod, whose beginning stock basis is $32,000. During the year, Sharrod’s share of a Kaiwan long-term capital gain (LTCG) is $5,000, and his share of an ordinary loss is $18,000. Sharrod t

> Jonas is a 60% owner of Ard, an S corporation. At the beginning of the year, his stock basis is zero. Jonas’s basis in a $20,000 loan made to Ard and evidenced by Ard’s note has been reduced to $0 by prior losses. During the year, Jonas’s net share of Ar

> Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $45,000 ten years ago and is currently worth $120,000. a. As a result of the distribution, wha

> Holbrook, a calendar year S corporation, distributes $15,000 cash to its only shareholder, Cody, on December 31. Cody’s basis in his stock is $20,000, Holbrook’s AAA balance is $8,000, and Holbrook holds $2,500 AEP bef