Exam 20: Corporations and Partnerships

In forming a corporation in the current year,organizational expenditures are incurred and paid.These expenditures must be amortized over a period of 180 months.

Which,if any,of the following costs cannot be expensed or amortized as organizational expenses?

Some corporations (e.g. ,personal service corporations)cannot use a calendar year for tax purposes.

If the basis of a partnership interest is exhausted,a partner can use loans made to the partnership to absorb excess losses.

Starling Corporation is a calendar year S corporation.For the current year,Starling had the following transactions: Sales $800,000 Cost of goods sold 500,000 Interest from City of Rochester bonds 4,000 Payroll 100,000 Charitable contributions 5,000 Long-term capital gains 3,000 Rent expense on business premises 40,000 ​ a.What is Starling Corporation's taxable income? b.What are the separately stated items?

In contrasting the tax treatment of excess capital losses of corporations with individual taxpayers: a.What advantages do corporate taxpayers enjoy? b.Disadvantages?

In completing Schedule M-1 (reconciliation of income per books with income per tax return)of Form 1120,to net income per books:

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of individuals b.Applies only to the income taxation of C corporations c.Applies to both the income taxation of individuals and of C corporations d.Applies to neither the income taxation of individuals nor of C corporations -The allowable deduction for charitable contributions is subject to percentage limitations.

The AMT tax rate applicable to corporations is the same as that applicable to individuals.

During the current year,Brown had taxable income of $200,000 and the following capital asset transactions: Long term: Gain $ 1,000 Loss 3,000 Short term: Gain $ 6,000 Loss 10,000 ​ How are these transactions handled if Brown is: a.An individual? b.A C corporation?

Changes in the liabilities (trade accounts payable,bank loans,etc. )of a partnership will not affect the basis of a partnership interest.

Drab Corporation,a calendar year and cash basis taxpayer,is formed in December 2016.In the same month,expenses are incurred as follows: Attorney fees for drafting the charter and by-laws $14,000 Expenses for issuing and selling stock 16,000 CPA fees for establishing accounting system 7,000 Fees for transfer of assets to the corporation 10,000 Expenses of organizational meetings of temporary directors and shareholders 3,000 Incorporation fee paid to the state 2,000 ​ a. How much qualifies as organizational expenditures that can be deducted or amortized over a period of 180 months or more? b.Would it matter if some of these expenses were not paid until 2017?

A city donates land to a corporation in return for the corporation's construction of an assembly plant on the site.The fair market value of the land is taxed to the corporation as income.

Qualified personal service corporations are subject to a flat income tax rate of 35% and are not allowed to use the graduated rates available to regular corporations.

Arthur forms Catbird Corporation with the following investment: Asset Basis Fair Market Value Marketable securities ​ $600,000 ​ $400,000 Land 500,000 800,000 ​ Arthur receives all of the stock of Catbird. a.What is Arthur's basis in the Catbird Corporation stock? b.What is Catbird Corporation's basis in the marketable securities? The land?

Jack is a 40% partner in the Gull Partnership,a calendar year taxpayer.As of January 1,2016,Jack's basis in his partnership interest is $100,000.Gull's operating results are: $400,000 loss for 2016 and $300,000 profit for 2017. a.What is Jack's basis for his partnership interest as of January 1,2017? b.What is Jack's basis for his partnership interest as of January 1,2018?

Teal Corporation is incorporated in November 2016.The following formation expenses are incurred in 2016: Legal and accounting expenses incident to organization $4,000 Expenses of temporary directors and organizational meetings of directors and shareholders 2,000 ​ Expenditures connected with the transfer of assets to Teal 3,000 ​ Except for the legal and accounting expenses which are paid in 2017,all other expenses are paid in 2016.If Teal Corporation uses the cash basis and adopts a calendar year for tax purposes,the amount of organizational expenditures it can elect to expense for 2016 is:

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of individuals b.Applies only to the income taxation of C corporations c.Applies to both the income taxation of individuals and of C corporations d.Applies to neither the income taxation of individuals nor of C corporations -A cash basis taxpayer cannot deduct a charitable contribution until the year of payment.

Madison,a calendar year individual taxpayer,has the following results for 2016: profit from operations of $200,000 and long-term capital loss from investments of $20,000.As to the capital loss,Madison may:

In the current year,Mockingbird Corporation (a calendar year taxpayer)has the following income and expenses: Gross income from operations $1,900,000 Expenses from operations 2,000,000 Dividends from Hummingbird Corporation 400,000 ​ Mockingbird Corporation owns 10% of the stock of Hummingbird Corporation.The dividends received deduction for the current year is: