Turtle Creek Partnership had the following revenues, expenses, gains, losses, and distributions: Sales revenue……………………………………………………………………………………………$40,000 Long-term capital gains………………………………………………………………………………$2,000 Cost of goods sold…………………………………………………………………………………..($13,000) Depreciation – MACRS……………………………………………………………………………..($3,000) Amortization of organization costs…………………………………………………………..($1,000) Guaranteed payments to partners for general management………………..($10,000) Cash distributions to partners………………………………………………………………….($2,000) a. Given these items, what is Turtle Creek’s ordinary business income (loss) for the year? b. What are Turtle Creek’s separately stated items for the year?
> What information must a taxpayer gather to determine the adjusted basis of property exchanged in a property transaction?
> What information must a taxpayer gather to determine the amount realized in a property transaction?
> Discuss the difference between gain realization and gain recognition in a property transaction.
> Compare and contrast the built-in loss duplication rule as it relates to §351 with the built-in loss disallowance rule as it applies to a complete liquidation.
> Explain whether a corporate shareholder recognizes gains and losses on the receipt of distributions of property from the complete liquidation of a subsidiary corporation.
> Compare how a shareholder computes her tax basis in stock received from the acquiring corporation in a straight Type A merger versus a Type B merger.
> W Corporation will acquire all of the assets and liabilities of Z Corporation in a Type A merger, after which W Corporation will sell off all of its assets and liabilities and focus solely on Z Corporation’s business. Explain whether the transaction will
> What is the presumption behind the continuity of ownership interest (COI) requirement in a tax-deferred acquisition? How do the target shareholders determine if COI is met in a Type A reorganization?
> Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Thriller Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of this year o
> Tiger Corporation reported taxable income of $500,000 from operations for this year. The company paid federal income taxes of $170,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Mike Woods. T
> How does the issue of double taxation arise when a corporation decides between making a distribution to a shareholder employee as a dividend or compensation?
> In a stock acquisition, why is there a difference between the tax basis of assets held by an acquired corporation and the tax basis of the shares held by a corporate acquirer? Why is this difference important?
> What tax benefits does the buyer hope to obtain by making a §338 or §338(h)(10) election?
> How does the form of a regular §338 election compare and contrast to a §338(h)(10) election?
> What are the key differences in the tax law requirements that apply to a Type A stock-for-assets acquisition versus a Type B stock-for-stock acquisition?
> What are the key differences in the tax law requirements that apply to forward versus reverse triangular mergers?
> Why do publicly-traded corporations use a triangular form of Type A reorganization in acquiring other corporations?
> What is the congressional purpose for allowing tax deferral on transactions that meet the definition of a corporate reorganization?
> Why does the acquiring corporation usually prefer to buy the target corporation’s assets directly in an acquisition?
> Under what conditions is it advantageous for a shareholder to hold §1244 stock? Why did Congress bestow these tax benefits on holders of such stock?
> Volunteer Corporation reported taxable income of $500,000 from operations for this year. The company paid federal income taxes of $170,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Rocky Top
> Why might a corporation prefer to characterize an instrument as debt rather than equity for tax purposes? Are the holders of the instrument indifferent as to its characterization for tax purposes?
> Beacon Corporation recorded the following deferred tax assets and liabilities: All of the deferred tax accounts relate to temporary differences that arose as a result of the company’s U.S. operations. Which of the following statements describes how Beaco
> Petoskey Stone Quarry, Inc. (PSQ), a calendar year, accrual basis C Corporation, provides landscaping supplies to local builders in northern Michigan. PSQ has always been a family owned business and has a single class of voting common stock outstanding.
> How does a corporation depreciate an asset received in a §351 transaction in which no gain or loss is recognized by the transferor of the property?
> Under what circumstances does property received by a corporation in a §351 transaction not receive a carryover basis? What is the reason for this rule?
> What is a carryover basis as it relates to property received by a corporation in a §351 transaction? What is the purpose of attaching a carryover basis to property received in a §351 transaction?
> How does the tax treatment differ in cases where liabilities are assumed with a tax avoidance purpose versus where liabilities assumed exceed basis? When would this distinction cause a difference in the tax consequences of the transactions?
> Explain whether a corporation’s assumption of shareholder liabilities will always constitute boot in a §351 transaction.
> Several years ago, your client, Brooks Robinson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defensive third baseman in major league history and his nickname, “The Human
> Cartman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Cartman decided to liquidate SP Corporation by distributing the assets to Cartman and Kenny. SP reported
> Blackhawk Company reports current E&P of negative $300,000. Its accumulated E&P at the beginning of the year was a negative $200,000. Blackhawk distributed $400,000 to its sole shareholder, Melanie Rushmore, on June 30 of this year. Melanie’s tax basis i
> Tiny and Tim each own half of the 100 outstanding shares of Flower Corporation. This year Flower reported taxable income of $6,000 and was subject to a 25 percent tax rate. In addition, Flower received $20,000 of life insurance proceeds due to the death
> What income tax issues must a corporation consider before it makes a noncash distribution to a shareholder?
> List the four basic adjustments that a corporation makes to taxable income or net loss to compute current E&P. What is the rationale for making these adjustments?
> Bevo Corporation experienced a complete loss of its mill as the result of a fire. The company received $2 million from the insurance company. Rather than rebuild, Bevo decided to distribute the $2 million to its two shareholders. No stock was exchanged i
> Adams Corporation has total deferred tax assets of $3,000,000 at year-end. Management is assessing whether a valuation allowance must be recorded against some or all of the deferred tax assets. What level of assurance must management have, based on the w
> Identify the following items as creating a temporary difference, permanent difference, or no difference.
> Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest. The company’s prior year tax return showed taxable in
> What is an unrecognized tax benefit and how does it affect a company’s current income tax expense?
> In addition to the current year tax return taxes payable or refundable, what other transactions can affect a company’s current income tax provision?
> Why are cumulatively unfavorable temporary differences referred to as deductible temporary differences?
> Why are cumulatively favorable temporary differences referred to as taxable temporary differences?
> Briefly describe what is meant by the asset and liability or balance sheet approach taken by ASC 740 with respect to computing a corporation’s deferred tax provision.
> When does a temporary difference resulting from income create a taxable temporary difference? A deductible temporary difference?
> When does a temporary difference resulting from an expense (deduction) create a taxable temporary difference? A deductible temporary difference?
> How does a corporation’s computation of earnings and profits differ based on the tax treatment of a stock redemption to the shareholder (that is, as either a dividend or exchange)?
> True or False: All differences between book and taxable income, both permanent and temporary, affect a company’s effective tax rate. Explain.
> Georgio owns a 20 percent profits and capital interest in Rain Tree LLC. For the current year, Rain Tree had the following revenues, expenses, gains, and losses: Sales revenue………………………………………………………………………………………….$70,000 Gain on sale of land (§1231)…………………
> Ashlee, Hiroki, Kate, and Albee LLC each own a 25 percent interest in Tally Industries LLC, which generates annual gross receipts of over $10 million. Ashlee, Hiroki, and Kate manage the business, but Albee LLC is a non-managing member. Although Tally In
> Ryan, Dahir, and Bill have operated Broken Feather LLC for the last four years using a calendar year-end. Each has a one-third interest. Since they began operating, their busy season has run from June through August, with 35 percent of their gross receip
> Rock Creek LLC was recently formed with the following members: What is the required taxable year-end for Rock Creek LLC? Name Tax Year End Capital/Profits % Mark Banks December 31 35% Highball Properties March 31 25% LLC Chavez Builders Inc. November
> Tall Tree LLC was recently formed with the following members: What is the required taxable year-end for Tall Tree LLC? Name Tax Year End Capital/Profits % Eddie Robinson December 31 40% Pitcher Lenders LLC June 30 25% Perry Homes Inc. October 31 35%
> Granite Slab LLC was recently formed with the following members: What is the required taxable year-end for Granite Slab LLC? Name Tax Year End Capital/Profits % Nelson Black December 31 22.0% Brittany Jones December 31 24.0% Lone Pine LLC June 30 4.5
> Last December 31, Ramon sold the 10 percent interest in the Del Sol Partnership that he had held for two years to Garrett for $400,000. Prior to selling his interest, Ramon’s basis in Del Sol was $200,000 which included a $100,000 share of nonrecourse de
> Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensati
> What must a shareholder do to waive the family attribution rules in a complete redemption of stock?
> Mary and Scott formed a partnership that maintains its records on a calendar-year basis. The balance sheet of the MS Partnership at year-end is as follows: At the end of the current year, Kari will receive a one-third capital interest only in exchange fo
> Connie recently provided legal services to the Winterhaven LLC and received a 5 percent interest in the LLC as compensation. Winterhaven currently has $50,000 of accounts payable and no other debt. The current fair market value of Winterhaven’s capital i
> Reggie contributed $10,000 in cash and a capital asset he had held for three years with a fair market value of $20,000 and tax basis of $10,000 for a 5 percent capital and profits interest in Green Valley LLC. a. If Reggie sells his LLC interest thirteen
> Claude purchased raw land three years ago for $1,500,000 to develop into lots and sell to individuals planning to build their dream homes. Claude intended to treat this property as inventory, like his other development properties. Before completing the d
> Ansel purchased raw land three years ago for $200,000 to hold as an investment. After watching the value of the land drop to $150,000, he decided to contribute it to Mountainside Developers LLC in exchange for a 5 percent capital and profits interest. Mo
> Jim has decided to contribute some equipment he previously used in his sole proprietorship in exchange for a 10 percent profits and capital interest in Fast Choppers LLC. Jim originally paid $200,000 cash for the equipment. Since then, the tax basis in t
> Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets: *Nonrecourse debt secured by the land equals $210,000 Each member received a one-third capital and profits interest in the
> When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC: *Nonrecourse debt secured by the land equals $160,000 James, Harold and Jenny each contributed $220,000 in cash
> Cosmo contributed land with a fair market value of $400,000 and a tax basis of $90,000 to the Y Mountain partnership in exchange for a 25 percent profits and capital interest in the partnership. The land is secured by $120,000 of nonrecourse debt. Other
> Harry and Sally formed the Evergreen partnership by contributing the following assets in exchange for a 50 percent capital and profits interest in the partnership: a. How much gain or loss will Harry recognize on the contribution? b. How much gain or los
> Maria has all of her stock in Mayan Corporation redeemed. Under what conditions will Maria treat the redemption as an exchange and recognize capital gain or loss?
> Laurel contributed equipment worth $200,000, purchased 10 months ago for $250,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Laurel agreed to guarantee all $15,000 of
> Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 to its suppliers but has no other debts.
> Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest. a. What is Joseph’s tax basis in his partnership interest? b. What is Berry
> Ray and Chuck own 50 percent capital and profits interests in Alpine Properties LLC. Alpine builds and manages rental real estate, and Ray and Chuck each work full time (over 1000 hours per year) managing Alpine. Alpine’s debt (both at the beginning and
> Suki and Steve own 50 percent capital and profits interests in Lorinda LLC. Lorinda operates the local minor league baseball team and owns the stadium where the team plays. Although the debt incurred to build the stadium was paid off several years ago, L
> Jenkins has a one-third capital and profits interest in the Maverick General Partnership. On January 1, year 1, Maverick has $120,000 of general debt obligations and Jenkins has a $50,000 tax basis (including his share of Maverick’s debt) in his partners
> Farell is a member of Sierra Vista LLC. Although Sierra Vista is involved in a number of different business ventures, it is not currently involved in real estate either as an investor or as a developer. On January 1, year 1, Farell has a $100,000 tax bas
> Juan Diego began the year with a tax basis in his partnership interest of $50,000. During the year, he was allocated $20,000 of partnership ordinary business income, $70,000 of §1231 losses, $30,000 of short-term capital losses, and received a cash distr
> Jenna began the year with a tax basis of $45,000 in her partnership interest. Her share of partnership debt consists of $6,000 of recourse debt and $10,000 of nonrecourse debt at the beginning of the year and $6,000 of recourse debt and $13,000 of nonrec
> Alfonso began the year with a tax basis in his partnership interest of $30,000. His share of partnership debt at the beginning and end of the year consists of $4,000 of recourse debt and $6,000 of nonrecourse debt. During the year, he was allocated $40,0
> What are the criteria to meet the “not essentially equivalent to a dividend” change-in-stock-ownership test in a stock redemption?
> Laura Davis is a member in a limited liability company that has historically been profitable but is expecting to generate losses in the near future because of a weak local economy. In addition to the hours she works as an employee of a local business, sh
> Pam, Sergei, and Mercedes are all one-third partners in the capital and profits of Oak Grove General Partnership. Partnership debt is allocated among the partners in accordance with their capital and profits interests. In addition to their normal share o
> Oscar, Felix, and Marv are all one-third partners in the capital and profits of Eastside general partnership. In addition to their normal share of the partnership’s annual income, Oscar and Felix receive annual guaranteed payments of $7,000 to compensate
> Carmine was allocated the following items from the Piccolo LLC for last year: Ordinary business loss Nondeductible penalties Tax-exempt interest income Short-term capital gain Cash distributions Rank these items in terms of the order they should be appli
> Lane and Cal each own 50 percent of the profits and capital of High Yield LLC. High Yield owns a portfolio of taxable bonds and municipal bonds, and each year the portfolio generates approximately $10,000 of taxable interest and $10,000 of tax-exempt int
> This year, Alex’s distributive share from Eden Lakes Partnership includes $8,000 of interest income, $4,000 of net long-term capital gains, $2,000 net section 1231 gain from the sale of property used in the partnership’s trade or business, and $83,000 of
> This year, Darrel’s distributive share from Alcove Partnership includes $6,000 of interest income, $3,000 of dividend income, and $70,000 ordinary business income. a. Assume that Darrel materially participates in the partnership. How much of his distribu
> Jhumpa, Stewart, and Kelly are all one-third partners in the capital and profits of Firewalker general partnership. In addition to their normal share of the partnership’s annual income, Jhumpa and Stewart receive an annual guaranteed payment of $10,000 t
> On the last day of its current tax year, Buy Rite LLC received $300,000 when it sold a machine it had purchased for $200,000 three years ago to use in its business. At the time of the sale, the basis in the equipment had been reduced to $100,000 due to t
> Hoki Poki, a cash-method general partnership, recorded the following items for its current tax year: Rental real estate income…………………………………………………………………………..$2,000 Sales revenue……………………………………………………………………………………………$70,000 §1245 recapture income…………………………………
> What stock ownership tests must be met before a shareholder receives exchange treatment under the substantially disproportionate change-in-stock-ownership test in a stock redemption? Why is a change in stock ownership test used to determine the tax statu
> The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45/55 ratio. For year 1, the G&P partnership reports the fo
> Richard Meyer and two friends from law school recently formed Meyer and Associates as a limited liability partnership (LLP). Income from the partnership will be split equally among the partners. The partnership will generate fee income primarily from rep
> What is a tax basis capital account, and what type of tax-related information does it provide?
> How does the amount of debt allocated to a partner affect the amount of gain a partner recognizes when contributing property secured by debt?
> What is recourse and nonrecourse debt, and how is each generally allocated to partners?
> What is inside basis and outside basis, and why are they relevant for taxing partnerships and partners?
> Under what circumstances is it possible for partners to recognize gain when contributing property to partnerships?
> What is the rationale for requiring partners to defer most gains and all losses when they contribute property to a partnership?
> What is a partnership interest, and what specific economic rights or entitlements are included with it?
> Compare and contrast the aggregate and entity concepts for taxing partnerships and their partners.
