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, all of which is passive. Tobias owns another investment that produced $90,000 of passive activity income during the year. (Assume that there were no distributions or changes in liabilities during the year.) How much of Solomon’s losses may Tobias deduct on his Form 1040? How much of the loss is suspended, and what Code provisions cause the suspensions?
> The Polozzi Trust will incur the following items in the next tax year, its first year of existence. Interest income……………………………………………………..$ 25,000 Rent income……………………………………………………………100,000 Cost recovery deductions for the rental activity…………..35,000 Capi
> Complete the following chart, indicating the comparative attributes of the typical simple trust and complex trust by answering yes/no or explaining the differences between the entities where appropriate. Attribute Simple Trust Complex Trust Trust co
> Each of the following items was incurred by Jose, the cash basis, calendar year decedent. Under the terms of the will, Dora took immediate ownership in all of Jose’s assets, except the dividend-paying stock. The estate received Jose&aci
> The trustee of the Pieper Trust can distribute any amount of accounting income and corpus to the trust’s beneficiaries, Lydia and Kent. This year, the trust incurred the following. Taxable interest income…………………………………………………$40,000 Tax-exempt interest in
> The Dolce Estate reports the following items for the current tax year. Dividend income……………………………………………$ 50,000 Taxable interest income………………….…………………..8,000 Passive activity income……………………………………..30,000 Tax-exempt interest income………………………………12,000 Dist
> The Kilp Sisters Trust is required to distribute $60,000 annually equally to its two income beneficiaries, Clare and Renee. If trust income is not sufficient to pay these amounts, the trustee can invade corpus to the extent necessary. During the current
> Assume the same facts as in Problem 22, except that the trust instrument allocates the capital gain to income. Facts from Problem 22 The Allwardt Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (L
> The Allwardt Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Lucy and Ethel) are entitled to the trust’s annual accounting income in shares of one-half each. For the current tax year, Allwardt re
> Discuss the concept of statutes of limitations in the context of the Federal income tax law. a. Who benefits when the statute applies—the government, the taxpayer, both? b. What happens when the statute is scheduled to expire within two weeks but the IRS
> Using Exhibit 28.4 as a guide, describe the computation of a fiduciary entity’s accounting income, taxable income, and distributable net income. Exhibit 28.4 Accounting Income, Distributable Net Income, and Taxable Income of the En
> Create a fact pattern that illustrates each of the following tax situations. Be specific. a. A simple trust. b. A complex trust with a $300 personal exemption. c. A complex trust with a $100 personal exemption.
> Your college’s accounting group has asked you to give a 10-minute speech titled “Trusts, Estates, and the AMT.” The audience will be students who have completed at least one course concerning Federal income taxation. Develop a brief outline for your rema
> In general terms, describe how the following entities are subject to the Federal income tax. (Answer only for the entity, not for its owners, beneficiaries, etc.) a. C corporations (Subchapter C). b. Partnerships (Subchapter K). c. S corporations (Subcha
> A local bank has asked you to speak at its Building Personal Wealth Conference on the topic of “What Should Your Trust Do for You?” Develop at least four PowerPoint slides, each one listing a function that a trust might be able to accomplish for an indiv
> Comment on the following items relative to tax planning strategies of a fiduciary entity. a. To reduce taxes for a typical family, should income be shifted to a trust or from a trust? Why? b. From a tax planning standpoint, who should invest in tax-exemp
> One of the key concepts in fiduciary income taxation is that of distributable net income (DNI). List the major functions of DNI on one PowerPoint slide, with no more than five bullets, to present to your classmates as part of the discussion of this chapt
> In year 1, the Helpful Trust agreed to make a $50,000 contribution to Local Soup Kitchen, a charitable organization. Helpful’s board agreed to the gift at a November year 1 meeting, but the check was not issued until February 20, year 2 (i.e., during the
> The Sterling Trust owns a business and generated $100,000 in depreciation deductions for the tax year. Mona is one of the income beneficiaries of the entity. a. Given the following information, compute Mona’s deduction, if any, for the Sterling depreciat
> In its first tax year, the Vasquez Estate generated $50,000 of taxable interest income and $30,000 of tax-exempt interest income. It paid fiduciary fees of $8,000. The estate is subject to a 35% marginal estate tax rate and a 40% marginal income tax rate
> In each of the following cases, distinguish between the terms. a. Offer in compromise and closing agreement. b. Failure to file and failure to pay. c. 90-day letter and 30-day letter. d. Negligence and fraud. e. Criminal and civil tax fraud.
> As a tax professional with a diverse group of clients and tax issues, why is it important that you understand how the IRS is organized and how its personnel are selected?
> Vogel Corporation owns two subsidiaries, Song and Bird. Song, located in State A, generated taxable income of $500,000. During this same period, Bird, located in State B, generated a loss of $100,000. a. Determine Song’s taxable income in States A and B,
> What is the difference between the definition of a proportionate current distribution and a proportionate liquidating distribution? What is the significance of the word proportionate?
> 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
> Assume the same facts as in Problem 53. On the first day of the third tax year, the partnership sold the equipment for $150,000. The gain on the sale is allocated equally to the partners. The partnership distributes all cash in accordance with the partne
> Roger Corporation operates in two states, as indicated below. This year’s operations generated $400,000 of apportionable income. Compute Roger’s State A taxable income assuming that State A apportions income based o
> Henrietta transfers cash of $75,000 and equipment with a fair market value of $25,000 (basis to her as a sole proprietor, $10,000) in exchange for a 40% profit and loss interest worth $100,000 in a partnership. a. How much are Henrietta’s realized and re
> Seagull, Inc., a § 501(c)(3) exempt organization, uses a tax year that ends on October 31. Seagull’s gross receipts are $600,000, and related expenses are $580,000. a. Is Seagull required to file an annual Form 990? b. If so, what is the due date?
> Heather sells land (adjusted basis, $75,000; fair market value, $95,000) to a partnership in which she controls an 80% capital interest. The partnership pays her only $50,000 for the land. a. How much loss does Heather realize and recognize? b. If the pa
> 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 ea
> Assume the same facts as in Problem 31, except that both states employ a three-factor formula, under which sales are double-weighted. The property factor in A is computed using historical cost, while this factor in B is computed using the net depreciated
> Prepare a PowerPoint presentation (maximum of six slides) entitled “Planning Principles for Our Multistate Clients.” The slides will be used to lead a 20-minute discussion with colleagues in the corporate tax department. Keep the outline general, but ass
> Sante Fe Corporation’s sales office and manufacturing plant are located in State A. Sante Fe also maintains a manufacturing plant and sales office in State B. For purposes of apportionment, State A defines payroll as all compensation pa
> Last year, Lory Corporation, a land development company, acquired land and construction equipment from its sole shareholder in a § 351 transaction. At the time, the land had a basis of $790,000 and a fair market value of $650,000, and the equipment had a
> 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
> 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 million dividend
> This year, the Tastee Partnership reported income before guaranteed payments of $92,000. Stella owns a 90% profits interest and works 1,600 hours per year in the business. Euclid owns a 10% profits interest (with a basis of $30,000 at the beginning of th
> 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?
> 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
> Otis is the CEO of Rectify, Inc., a private foundation. Otis invests $500,000 (80%) of the foundation’s investment portfolio in high-risk derivatives. Previously, the $500,000 had been invested in corporate bonds with an AA rating that earned 4% per annu
> 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.)
