Exam 13: Comparative Forms of Doing Business

Beige, Inc., has 3,000 shares of stock authorized and 1,000 shares outstanding. The shares are owned by Sam (700 shares) and Lois (300 shares). Sam's adjusted basis for his stock is $100,000 and Lois' adjusted basis for her stock is $90,000. Beige's earnings and profits are $500,000. Beige redeems 200 of Lois' shares for $150,000. Determine the amount of Lois' recognized gain (1) if she is Sam's mother and (2) if they are unrelated.

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?

List some techniques for reducing and/or avoiding double taxation by transferring funds to the shareholders that are deductible to the corporation.

Alice contributes equipment (fair market value of $82,000; adjusted basis of $20,000), subject to a $14,000 liability, to form Orange Partnership, a general partnership. Mary contributes $68,000 cash. Alice and Mary share equally in partnership profits and losses. What is Alice's and Mary's basis for their partnership interests?

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

Kirk is establishing a business in 2016 which could have potential environmental liability problems. Therefore, he is trying to decide between the C corporation form and the S corporation form. He projects that the business will generate losses of approximately $100,000 each year for the first 3 years and then will generate profits of at least $200,000 each year thereafter. All profits will be reinvested in the growth of the business. Kirk projects he will be in the 35% bracket in 2015 and thereafter. Advise Kirk on which tax form he should select.

A limited partner in a limited partnership has limited liability whereas a general partner in a limited partnership has unlimited liability unless the limited partners agree that the general partner will have limited liability.

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

The § 469 passive activity loss rules apply to S corporations but not to C corporations.

Normally a C corporation shareholder would prefer to receive a return of capital distribution (e.g., stock redemption) rather than a dividend distribution. Provide an example of where the opposite is true.

An S corporation is not subject to the AMT, but its shareholders are in that the S corporation's AMT adjustments and preferences are passed through to them.

Match the following: -General partnership

Kristine owns all of the stock of a C corporation which owns the following assets: Adjusted Basis Fair Market Value Accounts receivable \- 0- \ 60,000 Inventory 20,000 30,000 Machinery and equipment* 50,000 90,000 Buil dings** 120,000 170,000 Land 80,000 140,000 \ \ 490,000 * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Her adjusted basis for her stock is $270,000. Calculate Kristine's recognized gain or loss and classify it as capital or ordinary if she sells her stock for $500,000.

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

To which of the following entities does the AMT apply? ∙ Sole proprietorship. ∙ General partnership. ∙ Limited partnership. ∙ LLC. ∙ S corporation. ∙ C corporation.

Only C corporations are subject to the accumulated earnings tax (i.e., S corporations are not).

Bart contributes $100,000 to the Fish Partnership for a 40% interest. During the first year of operations, Fish has a profit of $20,000. At the end of the first year, Fish has outstanding loans from the following banks. First Bank (recourse) \ 10,000 Second Bank (nonrecourse) 30,000 What is Bart's at-risk basis in Fish at the end of the first year?

Walter wants to sell his wholly-owned C corporation, Cream, Inc. The fair market value of his stock exceeds the corporation's adjusted basis for the assets. Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

For Federal income tax purposes, a business entity with two or more owners may be conducted as a partnership, C corporation, S corporation, or limited liability company.

The § 465 at-risk provision and the § 469 passive activity loss provision have decreased the tax attractiveness of investments in real estate for partnerships and for limited liability companies.