Question: Which entity types are generally allowed to

> Assume that on January 1, year 1, XYZ Corp. issued 1,000 nonqualified stock options with an estimated value of $4 per option. Each option entitles the owner to purchase one share of XYZ stock for $14 a share (the per share price of XYZ stock on January 1

> True or False: A company determines its unrecognized tax benefits with respect to a transaction only at the time the transaction takes place; subsequent events are ignored. Explain.

> True or False: All temporary differences have a financial accounting basis. Explain.

> Evon would like to organize SHO as either an S corporation or as a C corporation generating a 9 percent annual before-tax return on a $200,000 investment. Assume individual and corporate tax rates are both 35 percent and individual capital gains and divi

> Evon would like to organize SHO as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $200,000 investment. Assume individual and corporate tax rates are both 35 percent and individual capital gains and dividend tax

> Kevin and Bob have owned and operated SOA as a C corporation for a number of years. When they formed the entity, Kevin and Bob each contributed $100,000 to SOA. They each have a current basis of $100,000 in their SOA ownership interest. Information on SO

> Rondo and his business associate, Larry, are considering forming a business entity called R&L but they are unsure about whether to form it as a C corporation, an S corporation or as an LLC. Rondo and Larry would each invest $50,000 in the business. Thus,

> Dave and his friend Stewart each own 50 percent of KBS. During the year, Dave receives $75,000 compensation for services he performs for KBS during the year. He performed a significant amount of work for the entity and he was heavily involved in managem

> Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $200,000 for a 40% ownership interest, Mickalya is contributing a building with a value of $200,000 and a tax basis of $150,000 for a 40%

> Damarcus is a 50% owner of Hoop (a business entity). In the current year, Hoop reported a $100,000 business loss. Answer the following questions associated with each of the following alternative scenarios. a. Hoop is organized as a C corporation and Dama

> In its first year of existence (year 1) WCC Corporation (a C corporation) reported taxable income of $170,000 and paid $49,550 of federal income tax. In year 2, WCC reported a net operating loss of $40,000. WCC projects that it will report $800,000 of ta

> In its first year of existence (year 1), SCC corporation (a C corporation) reported a loss for tax purposes of $30,000. Using the corporate tax rate table, determine how much tax SCC will pay in year 2 if it reports taxable income from operations of $20,

> Under what circumstances can a taxpayer meet the ownership and use requirements for a residence but still not be allowed to exclude all realized gain on the sale of the residence?

> Ultimate Comfort Blankets Inc. has had a great couple of years and wants to distribute its earnings while avoiding double taxation on its income. It decides to give its sole shareholder, Laura, a salary of $1,500,000 in the current year. What factors wou

> Nutt Corporation projects that it will have taxable income for the year of $400,000 before incurring any interest expense. Assume Nutt’s tax rate is 35 percent. a. What is the amount of the overall tax (corporate level + shareholder level) on the $400,00

> Jabar Corporation, a C corporation, projects that it will have taxable income of $300,000 before incurring any lease expenses. Jabar’s tax rate is 35 percent. Abdul, Jabar’s sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income and

> Sandy Corp. projects that it will have taxable income of $150,000 for the year before paying any fringe benefits. Assume Karen, Sandy’s sole shareholder, has a marginal tax rate of 35 percent on ordinary income and 15 percent on dividend income. Assume S

> How do shareholder loans to corporations mitigate the double tax of corporate income?

> When a corporation leases property from a shareholder and pays the shareholder at a higher than market rate, how is the excess likely to be classified by the IRS?

> How can leasing property to a corporation be an effective method of mitigating the double tax on corporate income?

> How can fringe benefits be used to mitigate the double taxation of corporate income?

> When a corporation pays salary to a shareholder-employee beyond what is considered to be reasonable compensation, how is the salary in excess of what is reasonable treated for tax purposes? Is it subject to double taxation?

> Explain why the IRS would be concerned that a closely held C corporation only pay its shareholders reasonable compensation.

> What are the ownership and use requirements a taxpayer must meet to qualify for the exclusion of gain on the sale of a residence?

> What limits apply to the amount of deductible salary a corporation may pay to an employee-shareholder?

> Explain why paying a salary to an employee-shareholder is an effective way to mitigate the double taxation of corporate income.

> How many times is income from a C corporation taxed if a retirement fund is the owner of the corporation’s stock? Explain.

> If XYZ corporation is a shareholder of BCD corporation, how many levels of tax is BCD’s before-tax income potentially subject to? Has Congress provided any tax relief for this result? Explain.

> Evaluate the following statement: “When dividends and long-term capital gains are taxed at the same rate, the overall tax rate on corporate income is the same whether the corporation distributes its after-tax earnings as a dividend or whether it reinvest

> Is it possible for the overall tax rate on corporate taxable income to be lower than the tax rate on flow-through entity taxable income? If so, under what conditions would you expect the overall corporate tax rate to be lower?

> How does a corporation’s decision to pay dividends affect its overall tax rate [(corporate level tax + shareholder level tax)/taxable income]?

> Is it possible for shareholders to defer or avoid the second level of tax on corporate income? Briefly explain.

> Who pays the second level of tax on a C corporation’s income? What is the tax rate applicable to the second level of tax and when is it levied?

> Who pays the first level of tax on a C corporation’s income? What is the tax rate applicable to the first level of tax?

> A taxpayer owns a home in Salt Lake City, Utah and a second home in St. George, Utah. How does the taxpayer determine which home her principal residence is for tax purposes?

> What are the differences, if any, between the legal and tax classification of business entities?

> In general, how are unincorporated entities classified for tax purposes?

> Other than corporations, are there other legal entities that offer liability protection? Are any of them taxed as flow-through entities? Explain.

> How do corporations protect shareholders from liability? If you formed a small corporation, would you be able to avoid repaying a bank loan from your community bank if the corporation went bankrupt? Explain

> What is an operating agreement for an LLC? Are operating agreements required for limited liability companies? If not, why might it be important to have one?

> How do business owners create legal entities? Is the process the same for all entities? If not, what are the differences?

> What are the most common legal entities used for operating a business? How are these entities treated similarly and differently for state law purposes?

> What are the tax advantages and disadvantages of converting a C corporation into an LLC?

> If limited liability companies and S corporations are both taxed as flow-through entities for tax purposes, why might an owner prefer one form over the other for tax purposes? List separately the tax factors supporting the decision to operate as either a

> Compare the entity level tax consequences for C corporations, S corporations, and partnerships for both nonliquidating and liquidating distributions of noncash property. Do the tax rules tend to favor one entity type more than the others? Explain.

> Does a residence for tax purposes need to be situated at a fixed location? Explain.

> Explain how liabilities of an LLC or an S corporation affect the amount of tax losses from the entity that limited liability company members and S corporation shareholders may deduct. Do the tax rules favor LLCs or S corporations?

> Compare and contrast the FICA tax burden of S corporation shareholder-employees and LLC members receiving compensation for working for the entity (guaranteed payments) and business income allocations to S corporation shareholders and LLC members assuming

> According to the tax rules, how are profits and losses allocated to LLC members? How are they allocated to S corporation shareholders? Which entity permits greater flexibility in allocating profits and losses?

> Are C corporations or flow-through entities (S corporations and entities taxed as partnerships) more flexible in terms of selecting a tax year-end? Why are the tax rules in this area different for C corporations and flow-through entities?

> Why are S corporations less favorable than C corporations and entities taxed as partnerships in terms of owner-related limitations?

> In its first year of existence, KES, an S corporation, reported a business loss of $10,000. Kim, KES’s sole shareholder, reports $50,000 of taxable income from sources other than KES. What must you know in order to determine whether she can deduct the $1

> Does a C corporation gain more tax benefit by carrying forward a net operating loss to offset other taxable income two years after the NOL arises or by carrying the NOL back two years? Explain.

> A C corporation has a current year loss of $100,000. The corporation had paid estimated taxes for the year of $10,000 and expects to have this amount refunded when it files its tax return. Is it possible that the corporation may receive a refund larger t

> Is a current-year net operating loss of a C corporation available to offset income from the corporation in other years? Explain.

> How does a taxpayer determine whether a dwelling unit is treated as a residence or nonresidence for tax purposes?

> Conceptually, what is the overall tax rate imposed on interest paid on loans from shareholders to corporations?

> Cool Touch Cookware (CTC) has been in business for about 10 years now. Dawn and Linda are each 50 percent owners of the business. They initially established the business with cash contributions. CTC manufactures unique cookware that remains cool to the t

> Dawn Taylor is currently employed by the state Chamber of Commerce. While she enjoys the relatively short workweeks, she eventually would like to work for herself rather than for an employer. In her current position, she deals with a lot of successful en

> Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following alternative situations? (Assume accumulated depreciatio

> Celia has been married to Daryl for 52 years. The couple has lived in their current home for the last 20 years. On October of year 0, Daryl passed away. Celia sold their home and moved into a condominium. What is the maximum exclusion Celia is entitled t

> Steve Pratt, who is single, purchased a home in Spokane, Washington for $400,000. He moved into the home on February 1 of year 1. He lived in the home as his primary residence until June 30 of year 5, when he sold the home for $700,000. a. What amount

> Steve and Stephanie Pratt purchased a home in Spokane, Washington for $400,000. They moved into the home on February 1, of year 1. They lived in the home as their primary residence until November 1 of year 1 when they sold the home for $500,000. The Prat

> Steve and Stephanie Pratt purchased a home in Spokane, Washington for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until June 30 of year 5, when they sold the home for $700,000. a. What a

> Lauren owns a condominium. In each of the following alternative situations, determine whether the condominium should be treated as a residence or nonresidence for tax purposes? a. Lauren lives in the condo for 19 days and rents it out for 22 days. b. Lau

> Several years ago, Junior acquired a home that he vacationed in part of the time and rented out part of the time. During the current year Junior: • Personally stayed in the home for 22 days. • Rented it to his favorite brother at a discount for 10 days.

> A self-employed taxpayer deducts home office expenses, including depreciation expense. The taxpayer then sells the home at a $100,000 gain. Assuming the taxpayer meets the ownership and use tests, does the full gain qualify for exclusion? Explain.

> Alisha, who is single, owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home where she meets with clients, prepares bills, and performs other work-related tasks. She purchased the home at the beginn

> Assume Rita’s consulting business generated $13,000 in gross income for the current year. Further, assume Rita uses the actual expense method for computing her home office expense deduction. a. What is Rita’s home office deduction for the current year?

> Assume Rita’s consulting business generated $15,000 in gross income. a. What is Rita’s home office deduction for the current year? b. What would Rita’s home office deduction for the current year be if her business generated $10,000 of gross income inst

> Brooke owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home where she meets with clients, prepares bills, and performs other work-related tasks. The home office is 300 square feet and the entire ho

> Assume that in addition to renting the condo for 100 days, Alexa uses the condo for 8 days of personal use. Also assume that Alexa receives $30,000 of gross rental receipts. Answer the following questions: a. What is the total amount of for AGI deductio

> Assuming Alexa receives $20,000 in gross rental receipts, answer the following questions: a. What effect does the rental activity have on her AGI for the year? b. Assuming that Alexa’s AGI from other sources is $90,000, what effect does the rental activi

> Assume Alexa receives $30,000 in gross rental receipts. a. What effect do the expenses associated with the property have on her AGI? b. What effect do the expenses associated with the property have on her itemized deductions?

> Assume Natalie uses the Tax Court method of allocating expenses to rental use of the property. a. What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo? b. What is the total amount of itemized

> Assume Natalie uses the IRS method of allocating expenses to rental use of the property. a. What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo? b. What is the total amount of itemized deduc

> Dillon rented his personal residence at Lake Tahoe for 14 days while he was vacationing in Ireland. He resided in the home for the remainder of the year. Rental income from the property was $6,500. Expenses associated with use of the home for the entire

> What limitations exist for self-employed taxpayers in deducting home office expenses, and how does the taxpayer determine which expenses are deductible and which are not in situations when the overall amount of the home office deduction is limited?

> Jenae and Terry Hutchings own a parcel of land as tenants by entirety. That is, they both own the property but when one of them dies the other becomes the sole owner of the property. For nontax reasons, Jenae and Terry decide to file separate tax returns

> Kirk and Lorna Newbold purchased a new home on August 1 of year 1 for $300,000. At the time of the purchase, it was estimated that the real property tax rate for the year would be .5 percent of the property’s value. Because the taxing jurisdiction collec

> Craig and Karen Conder purchased a new home on May 1 of year 1 for $200,000. At the time of the purchase, it was estimated that the real property tax rate for the year would be one percent of the property’s value. How much in property taxes on the new ho

> Jesse Brimhall is single. In 2016, his itemized deductions were $4,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before considering any property tax deductions). In 2016, he paid r

> In year 1, Peter and Shaline Johnsen moved into a home in a new subdivision. Theirs was one of the first homes in the subdivision. In year 1, they paid $1,500 in real property taxes on the home to the state government, $500 to the developer of the subdiv

> Rajiv and Laurie Amin are recent college graduates looking to purchase a new home. They are purchasing a $200,000 home by paying $20,000 down and borrowing the other $180,000 with a 30-year loan secured by the home. The Amins have the option of (1) payin

> Jennifer has been living in her current principal residence for three years. Six months ago Jennifer decided that she would like to purchase a second home near a beach so she can vacation there for part of the year. Despite her best efforts, Jennifer has

> On January 1, year 1 Brandon and Alisa Roy purchased a home for $1.5 million by paying $500,000 down and borrowing the remaining $1 million with a 7 percent loan secured by the home. Later the same day, the Roys took out a second loan, secured by the hom

> On January 1 of year 1, Jason and Jill Marsh acquired a home for $500,000 by paying $400,000 down and borrowing $100,000 with a 7 percent loan secured by the home. On January 1, of year 2, the Marshes needed cash so they refinanced the original loan by t

> In year 0, Eva took out a $50,000 home-equity loan from her local credit union. At the time she took out the loan, her home was valued at $350,000. At the time of the loan, Eva’s original mortgage on the home was $265,000. At the end of year 1, her origi

> Compare and contrast the manner in which employees and employers report home office deductions on their tax returns.

> On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.5 million by paying $200,000 down and borrowing the remaining $1.3 million with a 7 percent loan secured by the home. a. What is the amount of the interest expense the Franklins m

> Lewis and Laurie are married and jointly own a home valued at $240,000. They recently paid off the mortgage on their home. In need of cash for personal purposes unrelated to the home, the couple borrowed money from the local credit union. How much intere

> Javier and Anita Sanchez purchased a home on January 1, year 1 for $500,000 by paying $200,000 down and borrowing the remaining $300,000 with a 7 percent loan secured by the home. The loan requires interest-only payments for the first five years. The San

> Javier and Anita Sanchez purchased a home on January 1 of year 1 for $500,000 by paying $50,000 down and borrowing the remaining $450,000 with a 7 percent loan secured by the home. The loan requires interest-only payments for the first five years. The Sa

> Javier and Anita Sanchez purchased a home on January 1, 2016 for, $500,000 by paying $200,000 down and borrowing the remaining $300,000 with a 7 percent loan secured by the home. The loan requires interest-only payments for the first five years. The Sanc

> Troy (single) purchased a home in Hopkinton, MA on January 1, 2007 for $300,000. He sold the home on January 1, 2016 for $320,000. How much gain must Troy recognize on his home sale in each of the following alternative situations? a. Troy rented the home

> How are acquisition indebtedness and home-equity indebtedness similar? How are they dissimilar?

> Lars and Leigha saved up for years before they purchased their dream home. They were considering (1) using all of their savings to make a large down payment on the home (90 percent of the value of the home) and barely scraping by without the backup savin

> Juanita owns a principal residence in New Jersey, a cabin in Montana, and a houseboat in Hawaii. All of these properties have mortgages on which Juanita pays interest. What limits, if any, apply to Juanita’s mortgage interest deductions? Explain whether

> Using the Web as a research tool, determine which countries levy a double-tax on corporate income. Based on your research, what seem to be the pros and cons of the double-tax?

> A taxpayer purchases and lives in a home for a year. The home appreciates in value by $50,000. The taxpayer sells the home and purchases a new home. What information do you need to obtain to determine whether the taxpayer is allowed to exclude the gain o