Exam 13: Comparative Forms of Doing Business

Included among the factors that influence the choice of the form of a business entity are the following: ∙ Capital formation. ∙ Limited liability. ∙ Estimated life of the business. ∙ Number of owners and their roles in the management of the business. ∙ Freedom of choice in transferring ownership interest. ∙ Organizational formality including the related cost and extent of governmental regulations. Evaluate the validity of the statement.

Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?

To the extent of built-in gain or built-in loss at the time of contribution, partnerships may choose to allocate or not allocate this built-in gain or loss to the contributing partner on the sale of the contributed property by the partnership.

Match the following attributes with the different forms. A particular attribute may apply to more than one entity form -Sole proprietorship

Arnold purchases a building for $750,000 which is going to be used by his wholly-owned corporation. Which of the following statements are correct?

Match the following statements: -Sale of corporate stock by the C corporation shareholders.

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $500,000. Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

C corporations and their shareholders are subject to double taxation. S corporations and their shareholders typically are subject to single taxation. Therefore, for any given amount of corporate taxable income, the combined tax liability of a C corporation and its shareholders will exceed that of an S corporation and its shareholders.

After a § 721 contribution by a partner to a partnership, the partner's basis for his or her ownership interest is the same as the basis of the assets contributed (no liabilities are involved).

Malcomb and Sandra (shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest. Which of the following statements are false?

Bev and Cabel each own one-half of the stock of Finch, Inc., an S corporation with no accumulated E & P. Bev's basis in the Finch stock is $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each shareholder. Bev's stock basis at the end of the year is:

Match the following attributes with the different forms. A particular attribute may apply to more than one entity form -General partnership

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Match the following statements: -Charitable contributions

Amber, Inc., has taxable income of $212,000. In addition, Amber accumulates the following information which may affect its AMT. ∙ ​ Depreciation on buildings placed in service in the early 1990s was $52,000. ADS would have been $41,000. ∙ ​ ​ The president of Amber exercised stock options on Amber stock. She paid $30,000 for the stock, which had a fair market value at exercise date of $49,000. At the end of the year, the stock was worth $54,000. ∙ ​ Amber deducted percentage depletion of $65,000. The adjusted basis of the natural resource at the beginning of the year was $39,000. ∙ ​ Amber contributed CSX stock worth $20,000 to the Red Cross. Amber purchased the stock four months ago for $19,000. What is Amber's AMTI?

S corporation status always avoids double taxation.

The legal form of Edith and Fran's business entity is an LLC. Under the check-the-box Regulations, what options are available to them for Federal income tax purposes? Which option would you normally recommend?

Amos contributes land with an adjusted basis of $150,000 and a fair market value of $200,000 to White, Inc., an S corporation, in exchange for 50% of the stock of White, Inc. Carol contributes cash of $200,000 for the other 50% of the stock. If White later sells the land for $225,000, $62,500 [$50,000 + 50%($25,000)] is allocated to Amos and $12,500 ($25,000 × 50%) is allocated to Carol.

Match the following: -Limited partnership

Match the following statements: -Organization costs