Question: Tom owns 100% of Hammer Corporation, an

> In the current year, David gives $180,000 of land to David, Jr. In the current year, David’s wife gives $200,000 of land to George and $44,000 cash to David, Jr. Assume the couple elects gift splitting for the current year. a. What are the couple’s taxa

> In the current year, Beth, who is single, sells stock valued at $40,000 to Linda for $18,000. Later that year, Beth gives Linda $12,000 in cash. a. What is the amount of Beth’s taxable gifts? b. How would your answer to Part a change if Beth instead ga

> Amir made taxable gifts as follows: $800,000 in 1975, $1.2 million in 1999, and $600,000 in 2017. What is Amir’s gift tax liability for 2017?

> In 2017, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997. a. What is Sondra’s 2017 gift tax liability? b. What is her 2017 gift tax liability under the assumption that she

> On October 1, Sam lends Tom $10 million. Tom signs an interestfree demand note. The loan is still outstanding on December 31. Explain the income tax and gift tax consequences of the loan to both Sam and Tom. Assume that the federal shortterm rate is 5%.

> Melvin funds an irrevocable trust with Holcomb Bank as trustee and reserves the right to receive the income for seven years. He provides that at the end of the seventh year the trust assets will pass outright to his adult daughter, Pamela, or to Pamela’s

> Janet (who has made no taxable gifts) is considering transferring assets valued at $9 million to an irrevocable trust (yet to be created) for the benefit of her son, Gordon, age 15, with Farmers Bank as trustee. Her attorney has drafted a trust agreement

> Kwambe is thinking of making a substantial gift of stock to his fiancée, Maya. The wedding is scheduled for October 1 of the current year. Kwambe already has exhausted his unified credit. He also is considering giving $28,000 cash this year to each of hi

> Scott sells his one­third partnership interest to Sally for $43,000 when his basis in the partnership interest is $33,000. On the date of sale, the partnership has no liabilities and the following assets: The partnership has claimed $5,400 of

> In general, what is the due date for the gift tax return? What are two exceptions?

> Describe for a client five advantages and two disadvantages of disposing of property by gift instead of at death.

> Carlos has heard about the unified transfer tax system and does not understand how making gifts can be beneficial. Explain to Carlos how a lifetime gift fixes (freezes) the gifted property’s value for transfer tax purposes.

> Assume the same facts as in Problem C:12-21 and that Marcy has decided to give Phil property valued at $5.48 million. Phil probably will leave the gifted property to their children under his will. a. What are the gift tax consequences to Marcy and the e

> Phil and Marcy have been married for a number of years. Marcy is very wealthy, but Phil is not. In fact, Phil, who has only $10,000 of property, is very ill, and his doctor believes that he probably will die within the next few months. Make one (or more)

> A mother is trying to decide which of the two assets listed below to give to her adult daughter. The mother’s marginal income tax rate exceeds her daughter’s. Describe the pros and cons of giving each of the two prope

> A donor made large taxable gifts beginning in 1999 and a taxable gift in the current year. In the intervening years, the highest gift tax rates declined. In calculating the tax on taxable gifts of previous periods, which rate schedule is applicable: the

> Both Damien and Latoya make taxable gifts of $250,000 in the current year. Will their current year gift tax liabilities necessarily be identical? Explain.

> Describe to a married couple three advantages of making the gift-splitting election.

> A client is under the impression that a donor cannot incur a gift tax liability if he or she makes gifts to only U.S. charitable organizations. What should you say to the client?

> Joel receives a $40,000 cash distribution from the JM Partnership, which reduces his partnership interest from one­third to one­fourth. The JM Partnership is a general partnership that uses the cash method of accounting and has substantial liabilities. J

> Explain the requirements for classifying a transaction as a transfer of a qualified terminable interest property (QTIP).

> From a nontax standpoint, would a parent probably prefer to make a transfer to a minor child by using a Sec. 2503(c) trust or a Crummey trust?

> Compare and contrast a Sec. 2503(c) trust and a Crummey trust.

> In what circumstances might a potential donor be interested in making a net gift? Explain the potential income tax problem with making a net gift.

> Dick wants to transfer property with a $600,000 FMV to an irrevocable trust with a bank as the trustee. Dick will name his distant cousin Earl to receive all of the trust income annually for the next eight years. Then the property will revert to Dick. In

> Steve is considering the following transactions. Explain to him which actions will constitute gifts for gift tax purposes. a. Transferring all his ownership rights in a life insurance policy to another person b. Depositing funds into a joint bank accou

> In 2007, Frank made an installment sale of real property to Stu, his son, for $1 million with payments due over a 10-year period. Frank did not file a gift tax return. For 2015, Frank reported taxable gifts so large that he used all of his unified credit

> In 2017, Ginger Graham, age 46 and wife of Greg Graham, engaged in the transactions described below. Determine Ginger’s gift tax liability for 2017 if she and Greg elect gift splitting and Greg gave their son Stevie stock valued at $80,000 during 2017. G

> Morris Jory, a long-time tax client of the firm that employs you, has made substantial gifts during his lifetime. Mr. Jory transferred Jory Corporation stock to 14 donees in December 2016. Each donee received shares valued at $14,000. Two of the donees w

> Your client, Karen Kross, recently married Larry Kross. Karen is age 72, quite wealthy, and in reasonably good health. To date, she has not made any taxable gifts, but Larry made taxable gifts totaling $900,000 in 1998. Karen is considering giving each o

> When Kayla’s basis in her interest in the JKL Partnership is $30,000, she receives a current distribution of office equipment. The equipment has an FMV of $40,000 and basis of $35,000. Kayla will not use the office equipment in a business activity. What

> Assume the corporation in Problem C:11-61 (and C:6-56) had been an S corporation for its first 12 years, during which it distributed just enough cash for the shareholder to pay taxes on the pass-through income. Thus, the S corporation reinvested after-ta

> Problem C:6-56 considered two alternative forms for doing business. Now consider a third alternative. The C corporation could make an S election effective at the beginning of the current year (the 13th year), operate as an S corporation for the next 20 y

> One way to compare the accumulation of income by alterative business entity forms is to use mathematical models. The following models express the investment after-tax accumulation calculation for a particular entity form: Flow-through entities (S corpora

> Alice, a single taxpayer, will form Morning Corporation in the current year. Alice plans to acquire all of Morning’s common stock for a $100,000 contribution to the corporation. Morning will obtain additional capital by borrowing $75,000 from a local ban

> Joe Stephens formed Sigma Corporation on January 4 of Year 1, and the corporation immediately made an S election effective for that year. In forming the corporation, Joe contributed $50,000 cash in exchange for 100% of Sigma’s stock. Shortly thereafter,

> One of your wealthy clients, Cecile, invests $100,000 for sole ownership of an electing S corporation’s stock. The corporation is in the process of developing a new food product. Cecile anticipates that the new business will need approximately $200,000 i

> Cato Corporation incorporated six years ago in California, with Tim and Elesa, husband and wife, owning all the Cato stock. Immediately thereafter, Cato made an S election effective for that year. Tim and Elesa filed the necessary consents to the electio

> Sigma Corporation, an S corporation with one shareholder, incurred the following items Year 1 and Year 2: At the beginning of Year 1, the corporation had AAA and OAA balances of zero and accumulated E&P of $6,000. At the beginning of Year 1, the sha

> Hal organized Stable Corporation five years ago and has continued to own all its stock. The corporation made an S election one year after its incorporation. At the beginning of the current year, Stable reports the following earnings accumulations: Accum

> Curt incorporates Vogel Corporation on January 15 of the current year. Curt makes a $70,000 capital contribution including land having a $12,000 FMV, and Vogel makes a timely S election for this year. Vogel reports $60,000 of ordinary income, $40,000 of

> What is an electing large partnership? What are the advantages to the partnership of electing to be taxed under the electing large partnership rules?

> George and Martha formed Washington Corporation as an S corporation several years ago. George and Martha each have a 50% interest in the corporation. At the beginning of the current year, their stock bases are $45,000 each. In the current year, the corpo

> Tammy organized Sweets Corporation in January of the current year, and the corporation immediately elected to be an S corporation. Tammy, who contributed $40,000 in cash to start the business, owns 100% of the corporation’s stock. Sweets’ current year re

> For each of the following items, indicate whether the item will increase, decrease, or cause no change in the S corporation’s ordinary income (loss), AAA, and in the shareholder’s stock basis. The corporation was formed four years ago and made its S elec

> Tina, a single taxpayer, owns 100% of Rocket Corporation, an S corporation. She has an $80,000 stock basis for her investment on January 1 of the current year (Year 1). During the first 11 months of Year 1, Rocket reports an ordinary loss of $100,000. Th

> Stein Corporation, an S corporation, has 400 shares of stock outstanding. Chuck and Linda own an equal number of these shares, and both actively participate in Stein’s business. Chuck and Linda each contributed $60,000 when they organized Stein on Septem

> Harry and Rita formed Alpha Corporation as an S corporation, with each shareholder contributing $10,000 in exchange for stock. In addition, Rita loaned the corporation $7,000, and the corporation borrowed another $8,000 from the bank. In the current year

> In the current year, Harold and Faye form Entity Company by each contributing $50,000 to the company in exchange for a 50% ownership interest. In addition, the company borrows $40,000 from First Bank. In the current year, the company incurs a $110,000 lo

> Assume the same facts as in Problem C:11-42. Assume further that Raider Corporation reports $75,000 of ordinary income, $20,000 of tax-exempt income, and a $25,000 long-term capital gain in the next year. a. What income and deductions will Monte and All

> Monte and Allie each own 50% of Raider Corporation, an S corporation. Both individuals actively participate in Raider’s business. On January 1, Monte and Allie have adjusted bases for their Raider stock of $80,000 and $90,000, respectively. During the cu

> What are the advantages of a firm being formed as a limited liability company (LLC) instead of as a limited partnership?

> Bright Corporation, an S corporation, has been 100% owned by Betty since its creation 12 years ago. The corporation has been profitable in recent years and, in the current year (assume a non-leap year), reports ordinary income of $240,000 after paying Be

> Redfern Corporation, a calendar year taxpayer, has been an S corporation for several years. Rod and Kurt each own 50% of Redfern’s stock. On July 1 of the current year (assume a non-leap year), Redfern issues additional common stock to Blackfoot Corporat

> Toyland Corporation, an S corporation, uses the calendar year as its tax year. Bob, Alice, and Carter own 60, 30, and 10 shares, respectively, of the Toyland stock. Carter’s basis for his stock is $26,000 on January 1 of the current year (assume a non-le

> Al and Ruth each own one-half the stock of Chemical Corporation, an S corporation. During the current year (assume a non-leap year), Chemical earns $15,000 per month of ordinary income. On April 5, Ruth sells her entire stock interest to Patty. The corpo

> Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholde

> Theta Corporation formed 15 years ago. In its first year, it elected to use the cash method of accounting and adopted a calendar year as its tax year. It made an S election on August 15 of last year, effective for Theta’s current tax year. At the beginni

> Oliver organized North Corporation 15 years ago. The corporation made an S election last year after it accumulated $60,000 of E&P as a C corporation. As of December 31 of the current year, the corporation has distributed none of its accumulated E&P. In t

> Indicate in each of the following independent situations whether the taxpayer can accomplish what is proposed. Provide adequate authority for your answer including any special elections that are needed or requirements that must be satisfied. Assume all i

> Peter and his wife, Alice, own all the stock of Galleon Corporation. Galleon made its S election 12 years ago. Peter and Alice sold one-half their Galleon stock to a partnership owned by Rob and Susan (not husband and wife) at the close of business on De

> Tango Corporation, a calendar year taxpayer, has been an S corporation for several years. Tango’s business activities have become very profitable in recent years. On June 16, 2017, its sole shareholder desires to revoke the S election. a. How does Tango

> What is a publicly traded partnership? Are all publicly traded partnerships taxed as corporations?

> Orlando Corporation, a calendar year taxpayer, has been an S corporation for several years. On July 9, 2017, Orlando authorizes a second class of nonvoting preferred stock that pays a 10% annual dividend. The corporation issues the stock to Sid on Septem

> Voyles Corporation, a calendar year taxpayer formed five years ago, desires to make an S election beginning in 2017. Sue and Andrea each own one-half of the Voyles stock. a. How does Voyles make the S election? b. When can Voyles file its election form

> Carl Carson, a single taxpayer, owns 100% of Delta Corporation. During 2017, Delta reports $150,000 of taxable income. Carl reports no income other than that earned from Delta, and Carl claims the standard deduction. a. What is Delta’s income tax liabil

> Beta Corporation, an S corporation with one shareholder, incurred the following items: At the beginning of Year 1, the shareholder’s stock basis was $20,000, and her debt basis was $16,000. a. Assuming the corporation has no accumulat

> Jennelle and Paula are equal partners in the J&P Manufacturing Partnership. The partnership will form J&P Corporation by exchanging the assets and liabilities of the J&P Manufacturing Partnership for all the corporation’s stock on September 1 of the curr

> Glacier Smokeries has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation’s two equal shareholders, Adam and Rodney, had adjusted bases of $175,000 and $225,000, respectively, for their S corporation

> Peter owns 50% of Air South Corporation, an air charter service. His S corporation stock basis at beginning of the year is $100,000. Air South has not done well this year and will report an ordinary loss of $375,000. What tax issues should Peter consider

> Williams Corporation has operated as a C corporation for the last seven years. The corporation has assets with a $450,000 adjusted basis and an $800,000 FMV. Liabilities amount to $100,000. Dan Williams, who uses a calendar year as his tax year, owns all

> What taxes must an S corporation prepay by making quarterly estimated tax payments? Can a shareholder owning S corporation stock use the corporation’s estimated tax payments to reduce the amount of his or her individual estimated tax payments? Explain.

> What is an accumulated adjustments account (AAA)? What income, gain, loss, and deduction items do not affect this account assuming the S corporation has an accumulated E&P balance?

> What are the advantages and disadvantages to the partnership and its partners when a partnership termination is caused by a sale of at least a 50% capital and profits interest?

> What nonliquidating distributions made by an S corporation are taxable to its shareholders? Taxfree to its shareholders?

> Explain the differences between the tax treatment accorded nonliquidating property distributions made by S corporations and partnerships.

> Explain the positive and negative adjustments to the basis of an S corporation shareholder’s stock investment and the basis of an S corporation debt owed to the shareholder.

> What is a post-termination transition period? What loss carryovers can an S corporation shareholder deduct during this period?

> What actions can an S corporation shareholder take before year-end to increase the amount of the S corporation’s losses he or she can deduct in the year they are incurred?

> What limitations apply to the amount of loss pass-through an S corporation shareholder can deduct? What happens to any losses exceeding this limitation? What happens to losses if the shareholder transfers his or her stock?

> Explain the procedures for allocating an S corporation’s ordinary income or loss to each of the shareholders. What special allocation elections are available?

> What are Subchapter C earnings and profits (E&P)? How does the existence of such E&P affect the S corporation’s ability to earn passive income?

> At the time Cable Corporation makes its S election, it elects to use a fiscal year based on a Sec. 444 election. What other requirements must Cable satisfy to continue to use its fiscal year election for future tax years?

> What tax years can a newly created corporation that makes an S election adopt for its first tax year? If a fiscal year is permitted, does it require IRS approval?

> Lucia has a $20,000 basis in her limited partnership interest before her retirement from the partnership. Her share of partnership assets have a $23,000 FMV, and the partnership has no Sec. 751 assets. In addition to being paid cash for her full share of

> After an S corporation revokes or terminates its S election, how long must the corporation wait to make a new election? What circumstances permit an early reelection?

> What is an inadvertent termination? What actions must the S corporation and its shareholders take to correct an inadvertent termination?

> Will the following events cause an S election to terminate? a. The S corporation earning 100% of its gross receipts in its first tax year from passive sources b. The S corporation issuing nonvoting stock that has a dividend preference c. The S corporati

> Lance and Rodney are contemplating starting a new business to manufacture computer software games. They expect to encounter losses in the initial years. Lance’s CPA has talked to them about using an S corporation. Rodney, while reading a business publica

> Celia, age 30, is leaving a major systems development firm to establish her own firm. She will design computer-based systems for small- and medium sized businesses. Celia will invest $100,000 in the business. She hopes to operate near her breakeven point

> Julio, age 50, is a U.S. citizen who has a 28% marginal tax rate. He has operated the A&B Automotive Parts Company for a number of years as a C corporation. Last year, A&B reported $200,000 of pre-tax profits, from which it paid $50,000 in salary and $25

> Review the completed C corporation, partnership, and S corporation tax returns presented in Appendix B. List three major tax reporting similarities and three major tax reporting differences in either content or format among the three tax returns.

> Jeff and John organized Tampa Corporation 18 years ago and have each owned 50% of the corporation since its inception. In the current year, Tampa reports ordinary income/taxable income of $40,000. Assume the business does not qualify for the U.S. product

> RST business entity reported the following items during the current year: Dividends from 25%-owned domestic corporation…………………………$ 19,000 Municipal bond interest received…………………………………………………….18,000 Corporate bond interest received……………………………………………………29,

> Cara, Bob, and Steve want to begin a business on January 1, 2018. The individuals are considering three business forms—C corporation, partnership, and S corporation. • Cara has investment land with a $36,000 adjusted basis and a $50,000 FMV that she

> Tom is a 55% general partner in the RST Partnership. Tom wants to retire, and the other two partners, Stacy and Rich, want to continue the partnership business. They agree that the partnership will liquidate Tom’s interest in the partnership by paying hi

> Javier is retiring from the JKL Partnership. In January of the current year, he has a $100,000 basis in his partnership interest when he receives a $10,000 cash distribution. The partnership plans to distribute $10,000 each month this year, and Javier wi

> Ricky and Sharon married at age 22, started a family, and bought a house. At age 30, they began making a contribution of $4,000 to a traditional IRA. They continued making these contributions annually until age 60. If the average return on their investme

> Assuming an 8% return, how much would Barry have if he could invest an additional $1,000 per year that his employer would match beginning at age 35?

> How much would Barry have if he could earn a 10% return on his investment beginning at age 35?