What events qualify as asset dispositions?
> Carolyn has made no previous taxable gifts. Determine her potential gift tax if she makes $2,650,000 in taxable gifts in the current year after each donee’s annual exclusion but before her lifetime exclusion.
> Charlie exchanged land valued at $450,000 and a sports car valued at $50,000 for a 40 percent interest in a partnership that planned to build an apartment complex on the property. The land has a $325,000 basis and the auto a $40,000 basis. Explain the ta
> In June of year 1, Angelina (a calendar-year taxpayer) becomes the beneficiary of a new calendar-year trust. At the same time, Angelina also becomes the beneficiary of an estate that elects a March 31 fiscal year-end. In December of year 1, Angelina rece
> Wayne created a trust six years ago for the benefit of his children. In the current year, when the value of the trust assets is $1,000,000, Wayne transfers additional property valued at $300,000 into the trust. Because Wayne is concerned that he might ne
> Thomas died on August 15 of the current year. On September 2, his estate received a check for $2,000 from Thomas’s former employer for his final pay period. On September 18, Thomas’s estate received a $70,000 distribution from his employer’s retirement p
> Glen transferred corporate stock worth $300,000 with a tax basis of $160,000 to an irrevocable trust. No gift taxes are paid. The terms of the trust require the independent trustee to distribute the trust income annually to Glen’s sister, Barbara. Any ca
> Mary is John’s surviving spouse. He used $450,000 of his gift and estate tax exclusion for his lifetime gifts and his estate used $2,300,000 of his estate tax exclusion in closing his estate. What is Mary’s estate tax exclusion when she dies if she and J
> Peter exchanges a building valued at $400,000 for land also valued at $400,000 in a qualifying like-kind exchange. The building has a basis of $230,000. What are Peter’s realized gain or loss and the basis of the land?
> Samson’s gross estate was valued at $1 million when he died. Determine the value of his taxable estate before any credits using the following information: • The executor’s fees were $16,000. • His funeral expenses were $15,000. • A cash donation of $1
> When Ben died, his executor elected the alternate valuation date. What value is included in the gross estate for each of the following properties? a. Marketable securities valued at $80,000 at date of death, valued at $89,000 six months after death, and
> Laura transferred property valued at $120,000 into an irrevocable trust. Laura is to receive one-half of the income each year for the balance of her life. The other half of the income and the remainder interest are to go to Robert. One year before her de
> Five years ago, Jason purchased a $400,000 life insurance policy on his life. For each of the following, indicate how much of the $400,000 policy proceeds are included in his gross estate. a. The proceeds are payable to his estate. b. The proceeds were
> What provisions apply to a personal residence that is subject to an involuntary conversion?
> Which of the following items are included in the decedent’s gross estate? a. A life estate in a trust that pays the decedent $25,000 per year until he dies b. A remainder interest in a trust worth $60,000 owned by the decedent c. A one-half interest i
> Cora was in Europe from Thanksgiving of 2016 until early January of 2017. When she returned to her home, she found it had been broken into and jewelry with a fair market value of $40,000 and a basis of $54,000 was missing. Her adjusted gross incomes in 2
> Determine the credit for the gift and estate tax exclusion if the indexed exclusion in 2017 is $5,500,000.
> What is the gift tax annual exclusion and why was it enacted?
> Sharon transferred property into an irrevocable trust, but she retained the right to change the beneficiaries. What circumstances are required for this transfer to be a completed gift?
> Discount Auto Company sold an automobile at a $2,000 discount to an unrelated customer. Is this a gift?
> What distinguishes a simple trust from a complex trust?
> What is income in respect of a decedent, and how is it taxed?
> What are the three categories into which business losses are separated? What type of business interest is always considered a passive activity?
> Explain the principal difference between an LLP and an LLC.
> Explain the functional-use test. Explain the taxpayer-use test.
> What is the income limit for claiming a passive loss deduction under the passive activity real property business exception to material participation?
> What is the purpose of the accumulated adjustments account if the S corporation has always been an S corporation?
> Why do the basis and at-risk rules usually prevent the same amount of losses from passing through to shareholders of S corporations?
> What is a terminating event in relation to an S corporation?
> A married couple file jointly and have a $10,000 net long-term capital gain. What are the maximum tax rates applicable to that gain if their total taxable income would otherwise be taxed at 15 percent, 25 percent, 33 percent, or 39.6 percent and the gain
> Which entities discussed in this chapter insulate the owners from the general liabilities of the entity?
> Why are corporations permitted to file consolidated returns?
> Explain the tax treatment of services transferred to a partnership in exchange for a partnership interest.
> Wally sells the auto that he used 80 percent for business and 20 percent for personal use annually for $6,000. He purchased the auto four years ago for $20,000. If used 100 percent for business, he could have claimed $16,000 in depreciation. What is his
> What are the two types of controlled groups?
> How are capital assets classified as short term and long term? How are long-term gains and losses and short-term gains and losses treated in the capital asset netting process?
> What averaging conventions exist under MACRS? How does a taxpayer determine which averaging convention should be used?
> What are the carryover periods for corporate net operating losses?
> What is a corporation’s overall charitable contribution deduction limitation?
> Indicate whether a taxpayer can claim deductions for depreciation or amortization for the following: a. Land used in the taxpayer’s ranching business. b. An automobile used in business. The taxpayer accounts for the deductible car expenses using the st
> List five desirable characteristics of the corporate form of business.
> Bob and Ray started a tree trimming business that recently became profitable. They each buy a $250,000 life insurance policy on themselves. They then exchange ownership of the policies to provide funds in case of either of their deaths. How is this excha
> Explain how a corporation’s income is subject to double taxation.
> Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long term or short term. a. 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January
> How are net short-term capital gains of individuals treated? How are net short-term capital gains of corporations treated?
> What additional tests must employee-owned property satisfy before the employee can claim depreciation?
> What is the unextended due date for the income tax return of a corporation whose fiscal year ends on February 28? What is its extended due date? In what months must it make estimated payments for the next tax year?
> Core Carpet Factory purchased a $40,000 binding machine (seven year property) six months ago that they expected to use for at least ten years. They began to use the machine immediately. Unfortunately, the machine kept breaking down and the company finall
> What types of realty qualify for like-kind exchange treatment? What kinds of personalty qualify for like-kind exchange treatment?
> What type of loss would be recognized on the sale of receivables to a factor at 80 percent of the face value?
> How are assets classified to determine their tax treatment on disposition? What are other ways to classify assets?
> How is the amount realized on a sale or exchange determined?
> Cynthia, a sole proprietor has a loss this year and would like to claim no depreciation this year and then take double depreciation next year. Can she elect to do this?
> Linda inherited a car from her Uncle Ted, who had purchased the car two years ago for $38,000. The car’s value was $30,000 at the date of Ted’s death. What is Linda’s basis for the car?
> Why do you think Congress enacted the kiddie tax? Do you think it is achieving its goal? Can you think of a better way to achieve this goal?
> Mark’s father, Michael, loaned Mark $300,000 interest free for five years to invest in securities that yield a 10 percent annual return. At the end of the five years, Mark sells the securities to repay his father. Unfortunately, the market declined and M
> Beginning in 2012, Congress increased the top estate and gift tax rate to 40 percent and permanently increased the unified credit with inflation indexing. What (if any) changes do you think Congress might make in this area in the future?
> What types of assets are Section 1231 assets? What types of assets are capital assets? What types of assets are ordinary income assets? Give several examples of each type of asset.
> In 2010, Congress chose to repeal the estate tax for that year, but retained the gift tax. Why do you think they did that?
> Why do you think an S corporation is limited to having common stock with no differences other than voting rights?
> Why do you think services are excluded from the definition of property when a partner receives a partnership interest in exchange for property?
> Explain how a parent–subsidiary controlled group differs from an affiliated controlled group. Develop examples of each to illustrate the differences.
> Why do you think Congress requires the recognition of gain on the distribution of appreciated property but does not allow the recognition of loss on depreciated property in a nonliquidating distribution? Why do you think both gain and loss are recognized
> Bob and Jane, brother and sister, are equal partners in a family partnership that owns 400 shares of the Sibling Corporation. Their grandfather owns the remaining 100 shares of Sibling Corporation. How many shares of stock are owned directly and indirect
> The Blanton Corporation had a deficit in its current earnings and profits of $36,500 for the current year. It has $75,000 in accumulated earnings and profits. It made two distributions to its shareholders. On April 30, it distributed $40,000, and on Nove
> Waltjohn Corporation has $5,000 in CE&P and $10,000 in AE&P. It has two shareholders, Walter and John. On April 1 of the current year, Walter received a $10,000 distribution from the corporation on his Class A common stock. On July 1, John received a $10
> What policy reason do you think explains why losses on the personal-use property of individuals are nondeductible except for a limited amount of loss from involuntary conversions?
> A shareholder receives stock valued at $500,000 and $50,000 cash for two pieces of equipment as part of a Section 351 transaction. He transfers (1) Machine A with a fair market value of $330,000 and a basis of $300,000 and (2) Machine B with a fair marke
> What is Section 291 recapture? Compare this to unrecaptured Section 1250 gains.
> What is the rationale behind a corporation’s increasing its basis in property received in a Section 351 transaction for the gain recognized by the transferor shareholder?
> What is a possible reason for allowing persons to use the provision that allows the deferral of gain or loss for involuntary conversions on property that is sold under the threat of condemnation only?
> Why do you think the specifications for like-kind properties are so different for real property and for personalty?
> Mary had the following transactions involving BMN stock: a. Determine Mary’s gain or loss on each sale, assuming the shares are not specifically identified. b. Determine Mary’s gain or loss on the second sale if she s
> Beth had been using an automobile for personal purposes. In year 2, when she started a business, she began to use the car exclusively for this business at a time when it was worth $12,000. She had purchased the auto in year 1 for $16,000. a. Assuming th
> What are the policy reasons for allowing a portion of the gain on a personal residence to escape taxation?
> In 2017, Gregory, a single person, had $375,000 of ordinary taxable income. He sold Section 1202 stock at a taxable gain of $45,000, his art collection at a taxable gain of $102,000, and stock at a taxable gain of $55,000. Compare the tax result if Congr
> If the netting process for capital gains really has no impact on corporations, why do you think it still remains as part of the tax law?
> Is the treatment of purchased goodwill the same for tax and for GAAP? Explain.
> Your friend is thinking about starting up a new Internet business and would like to know how Web site development costs are treated for tax purposes. What are some of the costs involved in Web site development, and what are the issues involved in determi
> Explain the look-back procedure for Section 1231 assets. Why did this particular provision evolve?
> You are a self-employed individual thinking about buying or leasing a car to use in your business. What information is needed to properly evaluate this lease versus purchase decision?
> List at least 10 differences between taxable income and accounting income.
> Locate and read Publication 550: Investment Income and Expenses. How do you report a wash sale?
> Go to the IRS Web site (www.irs.gov) and locate the instructions for Form 709. Can spouses who elect to gift split file a joint gift tax return? Explain how they must file.
> Go to the IRS Web site (www.irs.gov) and locate the form that a corporation uses to make an S election and its related instructions. Summarize the information required on the form. Do the instructions include information on how to obtain an extension of
> Using the IRS Web site, www.irs.gov, locate the information and instructions for reporting the sale of a personal residence. Write a summary of what the taxpayer needs to do to elect Section 121 gain exclusion and how the sale is reported.
> Locate the Schedule D and the accompanying instructions for both an individual and a corporation on the IRS Web site, www.irs.gov. Compare the length of the two forms and the instructions as they appear on the Web site. Summarize your findings.
> Go to the IRS Web site (www.irs.gov) and locate Publication 538: Accounting Periods and Methods. How does a corporation make an election to use a 52-53-week tax year?
> Go to the IRS Web site (www.irs.gov) and locate instructions for Form 1120. If a corporation has less than $250,000 of total receipts and total assets at the end of the tax year, which schedules included with Form 1120 can it omit?
> Go to the IRS Web site (www.irs.gov) and locate the instructions for Form 706-NA for the estate of a nonresident alien. a. What is the definition of a nonresident alien decedent? b. Under what circumstances must the executor for a nonresident alien dece
> Chester provides you with the following income information for years 1 through 3, exclusive of capital loss carryovers: Determine the amount and type of capital loss deduction each year, if any, and identify any carryover to the following year. Shor
> Samantha is a single parent providing the sole support for her six-year-old daughter, Hillary. They live in an area where the public school is known to have problems with drugs and other crimes. Samantha wants to send Hillary to a private school to avoid
> Two years ago, Herbert, a widower, made a gift of marketable securities to his 35-year-old daughter, Sabrina, on which he paid a federal gift tax of $3 million. When Herbert died in 2017, his estate had been greatly reduced in value due to his having giv
> Joe, June, and Jim—coworkers—decide that they want to start their own business. Joe has $200,000 to contribute, June has equipment valued at $100,000 (basis = $90,000), and Jim has real estate suitable for the business valued at $200,000 (basis = $110,00
> Cheryl owned six horses that she and her family used for riding and occasionally showing in hunter-jumper competitions. At the beginning of May, one of the horses showed signs of severe illness and was diagnosed with equine encephalitis. She was required
> The partners of JPG Partnership want to change the form of entity from a partnership to a corporation. The corporation can be formed in several ways: The partnership can distribute the assets to the partners who then contribute the assets to the corporat
> Roberta Wynn has been a partner in the Cato Partnership for a number of years. With the permission of the other partners, she sells her partnership interest to a third party. At the time of sale, her basis in her partnership is only $100. For the portion
> June owned all the stock of Corporation A. Over the years, the corporation had been very successful but had never paid any dividends, although it had substantial earnings and profits. June wanted to expand into another line of business as a sole propriet
> Locate and read Internal Revenue Code Sections 267, 318, and 544. Compare the definition of family in each of these sections.
> Several years ago, Congress repealed the General Utilities Doctrine. Locate and read General Utilities & Operating Co. v. Helvering, 296 US 200 (1935). Summarize this case. What was the General Utilities Doctrine, and how did its repeal affect current tr
> Locate and read Section 385 of the Internal Revenue Code and develop a comprehensive list of factors that indicate legitimate debt. What is the status of the regulations that are to expand on this Code section?
