South Western Federal Taxation 2018 Corporations, Partnerships, Estates and Trusts 41st Edition by William - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below 1. Distributions by a corporation to its shareholders are presumed to be a dividend unless the parties can prove otherwise. a. …
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South Western Federal Taxation 2018 Corporations, Partnerships, Estates and Trusts 41st Edition by William – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
1. Distributions by a corporation to its shareholders are presumed to be a dividend unless the parties can prove otherwise.
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2. A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation’s E & P.
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3. All distributions that are not dividends are a return of capital and decrease the shareholder’s basis.
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4. All cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.
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5. A distribution in excess of E & P is treated as capital gain by shareholders.
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6. The terms “earnings and profits” and “retained earnings” are identical in meaning.
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7. To determine E & P, some (but not all) previously excluded income items are added back to taxable income.
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8. When computing E & P, taxable income is not adjusted for § 179 expense.
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9. When computing current E & P, taxable income must be adjusted for the deferred gain in a § 1031 like-kind exchange.
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10. An increase in the LIFO recapture amount must be added to taxable income to determine E & P.
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11. Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.
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12. No E & P adjustment is required for regular tax gains under the installment method.
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13. A corporation borrows money to purchase State of Texas bonds. The interest on the loan has no impact on either taxable income or current E & P.
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14. Federal income tax paid in the current year must be subtracted from taxable income to determine E & P.
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15. To determine current E & P, taxable income must be increased for any domestic production activities deduction.
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16. Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.
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17. The dividends received deduction has no impact on E & P.
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18. A realized gain from an involuntary conversion under § 1033 that is not recognized for income tax purposes has no effect on E & P.
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19. In the current year, Carnation Corporation has a § 179 expense of $20,000. As a result, in the current year, taxable income must be increased by $16,000 to determine current E & P.
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20. A deficit in current E & P is treated as occurring ratably during the year, unless the taxpayer can show otherwise.
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21. When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution. If a positive balance results, the distribution is a dividend to the extent of the balance.
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22. When current E & P is positive and accumulated E & P has a deficit balance, the two accounts are netted for dividend determination purposes.
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23. Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.
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24. Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.
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25. Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.
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26. Dividends taxed as ordinary income are considered investment income for purposes of the investment interest expense limitation.
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27. Certain dividends from foreign corporations can be qualified dividends for purposes of the preferential rate available to individuals.
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28. During the year, Blue Corporation distributes land to its sole shareholder. If the fair market value of the land is less than its adjusted basis, Blue will not be able to recognize a loss on the distribution.
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29. In a property distribution, the amount of dividend income recognized by a shareholder is always reduced by the amount of liability assumed by a shareholder.
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30. Property distributed by a corporation as a dividend is subject to a liability in excess of its basis. For purposes of determining gain on the distribution, the basis of the property is treated as being not less than the amount of liability.
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31. A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.
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32. Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.
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33. Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.
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34. Constructive dividends have no effect on a distributing corporation’s E & P.
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35. If a stock dividend is taxable, the shareholder’s basis in the newly received shares is equal to the fair market value of the shares received in the distribution.
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36. A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.
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37. If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock, then either a zero basis or a portion of the old stock basis may be assigned to the rights, at the shareholder’s option.
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38. If there is sufficient E & P, a distribution of nonconvertible preferred stock to common shareholders is taxable.
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39. The rules used to determine the taxability of stock dividends also apply to distributions of stock rights.
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40. If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.
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41. The tax treatment of corporate distributions at the shareholder level does not depend on:
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42. Rose Corporation (a calendar year taxpayer) has taxable income of $300,000, and its financial records reflect the following for the year.
Rose Corporation’s current E & P is:
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43. Tern Corporation, a cash basis taxpayer, has taxable income of $500,000 for the current year. Tern elected $25,000 of § 179 expense. It also had a related party loss of $20,000 and a realized (not recognized) gain from an involuntary conversion of $75,000. It paid Federal income tax of $150,000 and paid a nondeductible fine of $10,000. Tern’s current E & P is:
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44. Silver Corporation, a calendar year taxpayer, has taxable income of $550,000. Among its transactions for the year are the following:
Disregarding any provision for Federal income taxes, Silver Corporation’s current E & P is:
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45. Which of the following statements is incorrect with respect to determining current E & P?
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46. Aaron and Michele, equal shareholders in Cavalier Corporation, receive $25,000 each in distributions on December 31 of the current year. During the current year, Cavalier sold an appreciated asset for $60,000 (basis of $15,000). Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 6 percent. Before considering the effect of the asset sale, Cavalier’s current year E & P is $40,000 and it has no accumulated E & P. How much of Aaron’s distribution will be taxed as a dividend?
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47. Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw’s current year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000). Payment for one-half of the sale of the asset was made this year. How much of Tracy’s distribution will be taxed as a dividend?
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48. Falcon Corporation ended its first year of operations with taxable income of $250,000. At the time of Falcon’s formation, it incurred $50,000 of organizational expenses. In calculating its taxable income for the year, Falcon claimed an $8,000 deduction for the organizational expenses. What is Falcon’s current E & P?
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49. During the current year, Hawk Corporation sold equipment for $600,000 (adjusted basis of $360,000). The equipment was purchased a few years ago for $760,000 and $400,000 in MACRS deductions have been claimed. ADS depreciation would have been $300,000. As a result of the sale, the adjustment to taxable income needed to determine current E & P is:
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50. On January 2, 2017, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years. Section 179 was not elected. MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605. The equipment was sold on July 1, 2018, for $290,000. As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:
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51. Tungsten Corporation, a calendar year cash basis taxpayer, made estimated tax payments of $800 each quarter in 2017, for a total of $3,200. Tungsten filed its 2017 tax return in 2018 and the return showed a tax liability $4,200. At the time of filing, March 15, 2018, Tungsten paid an additional $1,000 in Federal income taxes. How does the additional payment of $1,000 impact Tungsten’s E & P?
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52. Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1. If Parakeet’s current E & P is $60,000, how much is allocated to Andrew’s distribution?
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53. Cedar Corporation is a calendar year taxpayer formed in 2013. Cedar’s E & P before distributions for each of the past 5 years is listed below.
Cedar Corporation made the following distributions in the previous 5 years.
Cedar’s accumulated E & P as of January 1, 2018 is:
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54. Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer. Distributions from Cockatoo are: $750,000 to Maria on April 1 and $250,000 to Christopher on May 1. Cockatoo’s current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Christopher’s distribution?
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55. Robin Corporation, a calendar year taxpayer, has a deficit in current E & P of $200,000 and a $580,000 positive balance in accumulated E & P. If Robin determines that a $700,000 distribution to its shareholders is appropriate at some point during the year, what is the maximum amount of the distribution that could potentially be treated as a dividend?
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56. Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?
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57. Glenda is the sole shareholder of Condor Corporation. She sold her stock to Melissa on October 31 for $150,000. Glenda’s basis in Condor stock was $50,000 at the start of the year. Condor distributed land to Glenda immediately before the sale. Condor’s basis in the land was $20,000 (fair market value of $25,000). On December 31, Melissa received a $75,000 cash distribution from Condor. During the year, Condor has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which of the following statements is true?
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58. Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000. On July 1, Blue distributes $250,000 to its sole shareholder, Sam, who has a basis in his stock of $52,500. As a result of the distribution, Sam has:
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59. Renee, the sole shareholder of Indigo Corporation, sold her stock to Chad on July 1 for $180,000. Renee’s stock basis at the beginning of the year was $120,000. Indigo made a $60,000 cash distribution to Renee immediately before the sale, while Chad received a $120,000 cash distribution from Indigo on November 1. As of the beginning of the current year, Indigo had $26,000 in accumulated E & P, while current E & P (before distributions) was $90,000. Which of the following statements is correct?
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60. Tangelo Corporation has an August 31 year-end. Tangelo had $50,000 in accumulated E & P at the beginning of its 2018 fiscal year (September 1, 2017) and during the year, it incurred a $75,000 operating loss. It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2017. If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2017 income tax return (assuming the return is filed by April 15, 2018)?
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61. As of January 1, Cassowary Corporation has a deficit in accumulated E & P of $100,000. For the tax year, current E & P (accrued ratably) is $240,000 (prior to any distributions). On July 1, Cassowary Corporation distributes $275,000 to its sole shareholder. The amount of the distribution that is a dividend is:
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62. At the beginning of the current year, Doug and Alfred each own 50% of Amaryllis Corporation (a calendar year taxpayer). In July, Doug sold his stock to Kevin for $140,000. At the beginning of the year, Amaryllis Corporation had accumulated E & P of $240,000 and its current E & P is $280,000 (prior to any distributions). Amaryllis distributed $300,000 on February 15 ($150,000 to Doug and $150,000 to Alfred) and distributed another $300,000 on November 1 ($150,000 to Kevin and $150,000 to Alfred). Kevin has dividend income of:
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63. On January 1, Eagle Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. During the year, Eagle incurs a net loss of $420,000 from operations that accrues ratably. On June 30, Eagle distributes $180,000 to Libby, its sole shareholder, who has a basis in her stock of $112,500. How much of the $180,000 is a dividend to Libby?
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64. Which of the following is not a consequence of the double tax on dividends?
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65. Which one of the following statements is false?
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66. In June of the current year, Marigold Corporation declares a $4 dividend out of E & P on each share of common stock to shareholders of record on August 1. Ellen and Tim each purchase 100 shares of Marigold stock on July 1. On July 15, Ellen also purchases a short position in Marigold. Tim sells 50 of his shares on August 10 and continues to hold the remaining 50 shares through the end of the year. Ellen closes her short position in Marigold on October 15. With respect to the dividends, which of the following is correct?
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67. In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations):
Warbler Corporation is not a member of a controlled group. As a result of the distribution:
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68. Purple Corporation makes a property distribution to its sole shareholder, Paul. The property distributed is a house (fair market value of $189,000; basis of $154,000) that is subject to a $245,000 mortgage that Paul assumes. Before considering the consequences of the distribution, Purple’s current E & P is $35,000 and its accumulated E & P is $140,000. Purple makes no other distributions during the current year. What is Purple’s taxable gain on the distribution of the house?
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69. Puffin Corporation makes a property distribution to its sole shareholder, Bonnie. The property distributed is a car (basis of $30,000; fair market value of $20,000) that is subject to a $6,000 liability which Bonnie assumes. Puffin has no accumulated E & P and $30,000 of current E & P from other sources during the year. What is Puffin’s E & P after taking into account the distribution of the car?
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70. Navy Corporation has E & P of $240,000. It distributes land with a fair market value of $70,000 (adjusted basis of $25,000) to its sole shareholder, Troy. The land is subject to a liability of $55,000 that Troy assumes. Troy has:
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71. Which one of the following statements about property distributions is false?
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72. Brett owns stock in Oriole Corporation (basis of $100,000) as an investment. Oriole distributes property (fair market value of $375,000; basis of $187,500) to him during the year. Oriole has current E & P of $25,000 (which includes the E & P gain on the property distribution), accumulated E & P of $100,000, and makes no other distributions during the year. What is Brett’s capital gain on the distribution?
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73. Rust Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct?
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74. Purple Corporation has accumulated E & P of $100,000 on January 1, 2017. In 2017, Purple has current E & P of $130,000 (before any distribution). On December 31, 2017, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual). Purple Corporation’s E & P as of January 1, 2018 is:
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75. Starling Corporation has accumulated E & P of $60,000 on January 1, 2017. In 2017, Starling Corporation had an operating loss of $80,000. It distributed cash of $40,000 to Zoe, its sole shareholder, on December 31, 2017. Starling Corporation’s balance in its E & P account as of January 1, 2018, is:
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76. Robin Corporation distributes furniture (basis of $40,000; fair market value of $50,000) as a property dividend to its shareholders. The furniture is subject to a liability of $55,000. Robin Corporation recognizes gain of:
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77. Ten years ago, Carrie purchased 2,000 shares of common stock in Osprey Corporation for $20,000. In the current year, Carrie receives a nontaxable stock dividend of 20 shares of Osprey preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common. Based on this information, Carrie’s basis in the stock is:
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78. Which of the following statements regarding constructive dividends is not correct?
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79. Pink Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. Each right entitles the holder to purchase one share of stock for $25. One right is issued for every two shares of stock owned. Jack owns 100 shares of stock in Pink, which he purchased three years ago for $3,000. At the time of the distribution, the value of the stock is $45 per share and the value of the rights is $2 per share. Jack receives 50 rights. He exercises 25 rights and sells the remaining 25 rights three months later for $2.50 per right.
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80. On January 1, Gold Corporation (a calendar year taxpayer) has E & P of $30,000 and generates no additional E & P during the year. On March 31, the corporation distributes $40,000 to its sole shareholder, Wyatt (basis in stock of $8,000). Determine the effect of the distribution on Wyatt’s taxable income and stock basis.
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81. On January 30, Juan receives a nontaxable distribution of stock rights from Platinum Corporation. Each right entitles the holder to purchase one share of stock for $40. One right is issued for every share of stock owned. Juan owns 100 shares of stock purchased two years ago for $4,000. At the date of distribution, the rights are worth $1,000 (100 rights at $10 per right) and Juan’s stock in Platinum is worth $5,000 (or $50 per share). On December 1, Juan sells all 100 stock rights for $12 per right. How much gain does Juan recognize on the sale?
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82. On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, while Tom’s basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?
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| 83. Daisy Corporation is the sole shareholder of Ostrich Corporation, which it hopes to sell within the next three years. The Ostrich stock (basis of $25 million) is currently worth $30 million, but Daisy believes that it would be easier to find a buyer if it was worth less. To lower the value of its stock, Ostrich distributes $4 million cash to Daisy (sufficient E & P exists to cover the distribution). At a later date, Daisy sells Ostrich for $26 million.
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84. Ashley, the sole shareholder of Hawk Corporation, has a stock basis of $200,000 at the beginning of the year. On July 1, she sells all of her stock to Matt for $1 million. On January 1, Hawk has accumulated E & P of $90,000 and during the year, current E & P of $160,000. Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1. How are the distributions taxed to Ashley and Matt? What is Ashley’s recognized gain on the sale to Matt?
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85. Brown Corporation, an accrual basis corporation, has taxable income of $150,000 in the current year. Included in its determination of taxable income are the following transactions.
What is Brown’s current E & P for the year?
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86. Finch Corporation (E & P of $400,000) distributed machinery ($10,000 adjusted basis, $150,000 fair market value) to its sole shareholder, Kathleen. The property is subject to a $50,000 mortgage, which Kathleen assumed. How much dividend income does Kathleen recognize as a result of the distribution and what is her basis in the machinery?
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87. Sylvia owns 25% of Cormorant Corporation. Cormorant sells diamonds to retail jewelry businesses. While Cormorant has a deficit in accumulated E & P of $56,000 at the beginning of the year, its current E & P is $500,000. Since the company had a successful year, Cormorant pays a $36,000 distribution to each of the company’s four shareholders on December 15. Three shareholders receive cash, but Cormorant distributes a diamond (adjusted basis of $40,000 and a fair market value of $36,000) to Sylvia in lieu of cash. Determine the effect of distributing the diamond on Cormorant’s and on Sylvia’s taxable income. What is Sylvia’s basis in the diamond? Was the distribution good tax planning on the part of Cormorant? Why or why not?
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88. Thrush, Inc., is a calendar year, accrual basis corporation with Henry as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, Thrush Corporation has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E & P is $50,000. On November 1, Thrush distributes an office building to Henry. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000. Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes. What are the tax consequences of the distribution to Thrush and to Henry? (In your answer, be sure to describe the effects on taxable income for both Thrush and Henry, the impact of the distribution on Thrush’s E & P, and Henry’s basis in the building.)
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89. Scarlet Corporation is an accrual basis, calendar year corporation. Scarlet distributes inventory (basis of $20,000; fair market value of $40,000) to Frank, its shareholder. Assuming that Scarlet has $500,000 of current E & P, what is the impact of the distribution on Scarlet Corporation and on Frank?
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90. Pebble Corporation, an accrual basis taxpayer, has struggled to survive since its formation, six years ago. As a result, it has a deficit in accumulated E & P at the beginning of the year of $340,000. This year, however, Pebble earned a significant profit; taxable income was $240,000. Consequently, Pebble made two cash distributions to Martha, its sole shareholder: $150,000 on July 1 and $200,000 December 31. The following information might be relevant to determining the tax treatment of the distributions.
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91. Stephanie is the sole shareholder and president of Hawk Corporation. She feels that she can justify at least a $220,000 bonus this year because of her performance. However, rather than a bonus in the form of a salary, she plans to have Hawk pay her a $220,000 dividend. Because Stephanie’s marginal tax rate is 35%, she prefers to receive a dividend taxed at 15%. Her accountant, however, suggests a $310,000 bonus in lieu of the $220,000 dividend since Hawk Corporation is in the 34% tax bracket. Should Stephanie take the $220,000 dividend or the $310,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Hawk and to Stephanie.
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92. Thistle Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. One right and $25 entitle the holder to subscribe to one share of stock. One right is issued for each share of stock held. Annette, a shareholder, owns 200 shares of stock that she purchased five years ago for $3,000. At the date of distribution of the rights, the market values were $50 per share for the stock and $25 for a right. Annette received 200 rights. She exercises 160 rights and purchases 160 additional shares of stock. She sells the remaining 40 rights for $1,080. What are the tax consequences to Annette?
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93. Albatross Corporation acquired land for investment purposes in 2003 at a cost of $100,000. Albatross sold the land to Monty on December 30, 2017, and did not elect out of the installment method of accounting. The selling price of the property was $400,000. Monty made a cash down payment of $50,000 on the date of sale and executed a $350,000 note, payable in seven annual installments of $50,000 each plus interest at the rate of 6% per annum. The first installment of $50,000 was due in 2018 which Monty paid, plus interest of $21,000. Discuss the effect of this sale on Albatross’s taxable income and its E & P account in 2017 and 2018.
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94. Lena is the sole shareholder and president of Gold Corporation. She feels that she can justify at least a $50,000 bonus this year because of her performance for the company. However, rather than a bonus in the form of a salary, she considers having Gold pay her a $50,000 dividend. She believes this would be preferable because it will be taxed at only 15% instead of her marginal rate of 35%. Her CPA has advised her to pay a $75,000 bonus in lieu of the $50,000 dividend. Assuming that Gold Corporation is in a 34% tax bracket, should Lena take the $50,000 dividend or the $75,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Gold and to Lena.
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95. Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2018. Among its transactions for the year are the following:
Disregarding any provision for Federal income taxes, determine Kite Corporation’s current E & P for 2018.
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96. Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer. Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1. Cockatoo’s current E & P is $120,000 and its accumulated E & P is $500,000. What are the tax implications of the distributions to Maria and Christopher?
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97. Jen, the sole shareholder of Mahogany Corporation, sold her stock to Jason on July 1 for $90,000. Jen’s stock basis at the beginning of the year was $60,000. Mahogany made a $30,000 cash distribution to Jen immediately before the sale, while Jason received a $60,000 cash distribution from Mahogany on November 1. As of the beginning of the current year, Mahogany had $16,000 in accumulated E & P, while current E & P (before distributions) is $30,000. What are the tax consequences of these transactions to Jen and Jason?
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98. At the beginning of the current year, Paul and John each own 50% of Apple Corporation. In July, Paul sold his stock to Sarah for $110,000. At the beginning of the year, Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 (prior to any distributions). Apple distributed $260,000 on March 1 ($130,000 to Paul and $130,000 to John) and distributed another $260,000 on October 1 ($130,000 to Sarah and $130,000 to John). What are the tax implications of the $130,000 distribution to Sarah?
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99. Gold Corporation has accumulated E & P of $2 million as of January 1 of the current year. During the year, it expects to have earnings from operations of $1,680,000 and to distribute $900,000 in cash to shareholders. Gold Corporation also expects to sell an asset for a loss of $2 million. Thus, it anticipates incurring a deficit of $320,000 for the year. What can Gold do to minimize the amount of dividend income to its shareholders?
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100. Timothy owns 100% of Forsythia Corporation’s stock. Corporate employees and annual salaries include Timothy ($300,000); Richard, Timothy’s son ($80,000); Rita, Timothy’s daughter ($100,000); and Sandy ($120,000). The operation of Forsythia Corporation is shared about equally between Timothy and Sandy (an unrelated party). Richard and Rita are full-time college students at a university about 150 miles away. Forsythia Corporation has substantial E & P but has not distributed a dividend for the past five years. Discuss problems related to the salary arrangement for Forsythia Corporation.
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101. Briefly describe the reason a corporation might distribute a property dividend to a shareholder in lieu of a cash distribution. Describe the tax effects of the property distribution on the shareholder and on the corporation.
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102. How does the definition of accumulated E & P differ from the definition of current E & P?
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103. How does the payment of a property dividend affect E & P?
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104. Goldfinch Corporation distributes stock rights to its shareholders. How is the basis of the stock rights received by Goldfinch’s shareholders determined?
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105. Briefly describe the rationale for the reduced tax rate on dividends for individual taxpayers.
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106. Christian, the president and sole shareholder of Venture Corporation, is paid an annual salary of $150,000. Christian would like to draw additional funds from the corporation but is concerned that increased salary might cause the IRS to contend his salary is unreasonable. Further, Christian does not want the corporation to pay any dividends. He would like to contribute $40,000 to his alma mater to establish scholarships for needy students. If Christian makes a pledge to the university to provide $40,000 for scholarships, would there be a problem if Venture Corporation paid the pledge on his behalf? Explain.
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107. Briefly define the term “earnings and profits.”
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108. Provide a brief outline on computing current E & P.
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109. In general, how are current and accumulated earnings and profits allocated to corporate distributions?
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110. Briefly discuss the rules related to distributions of non-cash property.
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111. What is a constructive dividend? Provide several examples of the term.
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Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2017.
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112. Gain on installment sale in 2017 deferred until 2018.
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113. Interest received from municipal bonds in 2017.
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114. Federal income tax refunds from tax paid in prior years.
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115. Loss on sale between related parties in 2017.
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116. Meal and entertainment expenses not deducted in 2017 because of the 50% limitation.
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117. Cash dividends distributed to shareholders in 2017.
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118. Gain realized, but not recognized, in a like-kind exchange transaction in 2017.
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119. Domestic production activities deduction claimed in 2017.
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120. Premiums paid on key employee life insurance policy (assume no increase in cash surrender value of policy) in 2017.
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121. Section 179 expense in second year following election.
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Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2017.
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122. Penalties paid to state government for failure to comply with state law.
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123. Dividends received deduction.
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124. Charitable contribution carryforward deducted in the current year.
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125. Intangible drilling costs deducted currently.
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126. Gain realized (but not recognized) on a like-kind exchange.
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127. A decrease in the LIFO recapture amount during the year.
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128. Excess capital loss in year incurred.
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129. State income tax paid in the current year.
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130. Proceeds of life insurance received upon the death of a key employee (policy had no cash surrender value).
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Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
